Understanding Social Security

All employees in the U.S., including those working for nonprofit organizations, are required to pay Social Security taxes on their earnings of $100 or more; in return, they all earn credit towards retirement, disability, and survivors benefits. The way those taxes are calculated varies slightly from case to case, but the benefits they go toward, and how you earn credit toward claiming them, is standard across the American workforce.

In a typical case, you and your employer each pay a 6.2% Social Security tax on up to $128,400 of your earnings, as well as a 1.45% Medicare tax (for the universal retirement-age health insurance plan of the same name) on all your earnings.

Less-typical cases include:

• Self-employed nonprofit workers, who pay the combined employee and employer amount. That’s a 12.4% Social Security tax on up to $128,400 of your net earnings, and a 2.9% Medicare tax on your entire net earnings; if you earn more than $200,000 (or $250,000 for married couples filing jointly), you must pay 0.9% more in Medicare taxes.
• Employees of certain religious organizations, which can choose not to participate in the Social Security program. When a religious group does not participate, it does not withhold Social Security or Medicare taxes from your wages, nor does it pay the matching share of those taxes. If that case, you must pay Social Security and Medicare taxes yourself (assuming you earn more than $100 per year). In effect, you are treated similarly to people who are self-employed, although there are special tax credits you can take when you file your tax return.

The way you qualify to receive Social Security benefits is by earning “work credits,” which are based on the amount of money you earn in a given year, up to four per year. (In 2018, for instance, you receive one work credit for each $1,320 of income.) The number of work credits you need to qualify for a particular Social Security benefit depends on your age and the type of benefit in question. No one needs more than 40 work credits, which usually translates to 10 years of work.

The benefits available through Social Security include:

• Retirement benefits: For anyone born after 1928, it takes 40 credits to become eligible for Social Security retirement benefits.
• Disability benefits: The number of credits you need to qualify for disability benefits depends on your age and when, with respect to your work history, you become disabled.
• Survivors benefits: Benefits may be payable to your spouse and children; the number of credits needed depends on your age at the time of death. For instance, a worker who dies before age 29 needs only six credits for his survivors to receive benefits.

Note that being employed does not affect your eligibility for retirement benefits, but it can affect the amount you receive in benefits, depending on your age and your earnings. If you have not yet reached full retirement age, your benefits will be reduced depending on how much you earn, and the amount of time left before you reach full retirement age. Once you reach your full retirement age, there is no income-based reduction in Social Security benefits. For more details on receiving benefits while working, check here.

For more information on any of the above, check the Social Security Administration’s Benefits Planner site.

You can also visit socialsecurity.gov to:

• Apply for benefits
• Open a “my Social Security” account, which you can use to review your Social Security Statement
• Verify your earnings
• Print a benefit verification letter
• Change your direct deposit information
• Request a replacement Medicare card
• Get a replacement SSA-1099/1042S
• Get more information

Adapted from this article by the Social Security Administration

FOR MORE INSIGHT

On Social Security
Before you claim social security explore our new planning for retirement tool (Consumer Financial Protection Bureau)
Thinking about when you’ll claim social security benefits is time well spent (Consumer Financial Protection Bureau)
Understanding Social Security (Social Security Administration)
Your retirement benefit: How it’s figured (Social Security Administration)
Retirement estimator (Social Security Administration)

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