The time and effort you spend working for your employer do more than bring you a paycheck – you are also earning work credits that pay into Social Security benefits. These work credits are essential toward establishing your eligibility for everything from retirement to disability benefits, along with your family’s eligibility for survivors’ benefits upon your death.
It’s important to understand how these work credits are calculated and how they affect future benefits for both you and your family.
- Social Security Disability
- Social Security Retirement
- Survivor Benefits
- Dependent Benefits
America’s Social Security program is likely to touch the life of every working American. As recently as 2020, more than 180 million people were actively paying into the Social Security system through their taxable earnings.
Roughly 65 million Americans receive monthly Social Security compensation. And while most Americans receive Social Security benefits related to retirement, retirement benefits aren’t the only SSA benefits available, nor are they the only benefits affected by the number of work credits earned.
Social Security work credits are earned each year as the American workers pay into the Social Security system through payroll deductions. For many SSA benefits, particularly retirement benefits, any worker born after 1928 must have earned a minimum of 40 credits. This is usually equivalent to 10 years of employment.
The number of credits you earn over a lifetime of working does not determine your monthly benefit amount. Your work credits simply determine whether you are eligible for benefits. Instead, disability payments are calculated by taking into account a worker’s earnings over the entire span of their working years.
Earning work credits is simple – all you must do is work. Starting in 1978, American workers can earn up to four Social Security credits per year. Credits are based on a worker’s total earnings in a given year, which is tracked by your Social Security number. Depending on your earnings, someone may work a full year before earning four credits, or all four may be earned early in the year.
Each year, the SSA adjusts the amount of earnings necessary to earn a work credit. For example, in 2021, a worker can earn one Social Security credit for every $1,470 in covered earnings. To earn the maximum of four credits for the year, a worker must earn $5,880 per year.
For many American workers, Social Security taxes are automatically deducted from their earnings by an employer, but those who are self-employed can also earn work credits. Much like traditional employees, those who are self-employed earn one credit for each $1,470 in income earned, with a cap of four credits per year. In addition, members of the U.S. military also earn Social Security credits the same way civilian employees do.
The Social Security Administration even has special rules about how credits can be earned for farm work, domestic work, and work for a religious or other nonprofit organization that does not pay Social Security tax.
It’s important to note that not every type of work earns work credits toward Social Security benefits. Most federal employees hired before 1984 do not earn work credits, and nor do railroad employees with more than 10 years of service (these groups have their own benefit programs). In addition, some state and local government entities may choose not to participate in the Social Security program, so their employees do not earn work credits.
Social Security work credits are necessary for many SSA-administered programs, including the following:
American workers who cannot perform their job duties because of a physical or mental disability may be eligible for Social Security disability benefits to replace a portion of their lost income. To qualify, the disability must be expected to last at least one full year or end in death.
The disability claim process can often be long and frustrating. Many people choose to work with an SSDI attorney to help ease the process and increase the likelihood of success. But before you are eligible to file a claim, you must have earned enough work credits.
The number of work credits you need for Social Security disability benefits depends largely on your age and how much work history you have at the time of disability onset. To be eligible for Social Security disability benefits, you must meet various thresholds based on a combination of your age, and how recently you earned your credits. For example, if you are age 24 or younger, you must have earned at least six credits in the three years before your disability began.
But if you are between the ages of 24 and 31, you generally need to show that you have earned work credits for the time between age 21 and when you became disabled. Once you reach the age of 31, you must have earned a minimum of 20 credits throughout the 10-year period immediately preceding your disability in order to be considered eligible for Social Security disability benefits.
Please keep in mind that the number of credits earned will have no bearing on the overall disability determination. That decision is made entirely based on medical evidence related to the specific disability in question.
Social Security retirement benefits are what most people associate with the Social Security Administration. Retirement benefits are designed to replace a portion of a worker’s income after retirement.
For most members of today’s workforce, 40 credits are required to be eligible for Social Security retirement benefits. This is the requirement for all American workers born after 1928. It generally equates to roughly 10 years of employment.
Social Security retirement benefits reach their full maturity once you reach age 67, though it’s possible to begin receiving benefits at age 62 at a reduced benefit amount. It’s also possible to continue working past the full retirement age of 62 and delay the time at which you begin receiving retirement compensation. If you wait until you are 70 before collecting retirement benefits, you can collect the maximum monthly payment for the rest of your life.
Social Security work credits also determine your eligibility for Medicare coverage. Most people qualify for Medicare at age 65. In some cases, those who have received disability benefits for at least 24 months may receive Medicare benefits before age 65. Those with permanent kidney failure or who receive disability compensation related to Lou Gehrig’s disease (Amyotrophic Lateral Sclerosis) may benefit from Medicare coverage without meeting the 24-month requirement.
Also, surviving dependents may be eligible for Medicare once they turn 65, or even younger if they also are disabled. People with permanent kidney failure or in need of a kidney transplant may receive Medicare benefits at any age – based on their own work credits, a spouse’s, or a parent’s.
When someone dies, survivors may be eligible to receive a percentage of the basic Social Security benefit. The range usually spans 75-100% of the benefit amount for each survivor, with a household cap of 150-180% of the original benefit amount. The number of credits it takes for family members to be eligible for survivors’ benefits depends on the age of the person at the time of death. The younger someone is, the fewer credits are needed for the family to be eligible – but the maximum required is 40.
In some circumstances, the SSA will pay benefits to surviving children and spouses caring for those children, even if a worker did not earn sufficient work credits before death. Survivors may be able to claim benefits if the deceased worker has earned at least six credits within the three years immediately preceding death. If someone was already receiving retirement or disability benefits at the time of death, the SSA may pay survivors based on that entitlement, without needing to re-determine credits.
The SSA will typically pay a spousal benefit to a surviving spouse, starting at their full retirement age, or as early as age 60 with a reduced benefit amount. Disabled widows and widowers are eligible to receive survivors benefits as early as age 50. Under some conditions, divorced spouses may be able to receive a survivor benefit, and unmarried children under 18 or up to age 19 if they are still attending high school full time may receive survivors benefits.
In rare circumstances, the following groups may also be eligible to receive survivors benefits:
- Adopted children
- Disabled children permanently disabled before age 22
- Dependent parents older than 62
In the cases of workers who have accrued sufficient credits, a one-time payment of $255 may also be made to dependents after the worker’s death.
In some cases, dependent family members may also be eligible to receive Social Security retirement or disability benefits. For example, a spouse age 62 or older may be eligible, or a spouse of any age as long as they are caring for a child who is either disabled or under age 16.
Social Security benefits may also be available for dependents who are unmarried and under age 18, or up to age 19 if enrolled in high school full time. In addition, disabled dependent children over 18 but who became disabled before age 22 may be eligible to receive some benefits.
Overall, a qualifying dependent family member may be eligible to receive benefits of up to half the amount you receive in either Social Security retirement or disability compensation. The SSA abides by the limit that a total household of dependent family members can receive no more than 150 to 180% of an individual’s Social Security benefit.
America’s Social Security system offers valuable financial support for millions of Americans. It’s important to understand your work history and the number of credits you’re earning – and how work credits affect your eligibility for various Social Security benefit programs.
It’s an important first step to ensure you have access to the full range of benefits you have earned during your work life. If you are unsure where to start or need help with your disability claim, reach out to an SSDFacts Advisor today.