Money Matters - Social Security Primer: Your Benefits
BOSTON (CBS) - In order to get benefits from Social Security, you must work and pay taxes into the system. An exception would be an at-home spouse or a child of a worker, who could collect benefits as a dependent or a survivor.
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You earn Social Security "credits" that count toward eligibility for future benefits. You can earn a maximum of four credits each year. This year you need to earn $1120 for each credit. The amount of money needed to earn one credit increases every year.
Most individuals need 40 credits (10 years of work) to qualify for retirement benefits. Younger people need fewer credits to be eligible for disability benefits or for their family members to be eligible for survivor benefits if they should die.
During your working lifetime, you hopefully will earn more credits than you need for eligibility. The extra income you earn will increase your final benefit because the more you earn and the longer you work, the larger your benefit will be because of the way the benefit formula is set up.
This year your employer will pay 6.2 percent of your gross salary, up to $106,800 and you will only contribute 4.2 percent. Self-employed individuals will pay 10.4 percent of their taxable income into Social Security (again, up to the annual limit). Self-employed individuals are allowed a deduction for part of the tax. The limit on the taxable income goes up every year.
Medicare needs to be dealt with here under this tax-bite section because it gets a piece of your paycheck each week also. There is no income limit on the amount you pay into Medicare. You contribute 1.45 percent, as does your employer.
So when Julia Roberts earned $20 million for Eat, Pray, Love she paid 1.45 percent Medicare tax on all of those dollars. For those of you who don't do math real fast, Roberts paid $290,000 in Medicare taxes. The studio also paid $290,000. Not enough to bail out the Medicare system but every little bit helps.
Hang on to those W-2s you receive from your employer. That W-2 may be the only proof you have of former employment. The Social Security Administration records your earnings information on an annual basis. It receives the information from your employer in order to credit your account. If your name or number is incorrect, someone else may be credited with your earnings.
Employers only have to keep employment records for four years, but the larger corporations keep them much longer. It is your responsibility to keep track of your Social Security earnings. When you receive your Social Security benefit statement, which should arrive a couple of months before your birthday check it against your old W-2s for any errors. (You did keep your old W-2s didn't you?)
If there are errors, correct them as soon as possible with the SSA. As long as you have proof of your earnings the SSA will make the correction, no matter how far in the past the error occurred.
You can apply for benefits online or at the SSA office and do it in person! Call 800-772-1213 to set up an appointment.
