What are Social Security benefits?
Social Security benefits are payments made to qualifiy retire and disable people and their spouses, children, and survivors. Social Security—officially the Old-Age, Survivors, and Disability Insurance (OASDI) program in the US—is a comprehensive federal benefits program. Which is design to provide partial replacement income for qualifying retirees and their spouses whose spouses or former spouses qualify. and disable. Under specified conditions, it also supports the children of the beneficiaries.
President Franklin Roosevelt signed the original Social Security Act in 1935 . The current law, after several amendments, covers several social insurance and social welfare programs, including the issuance of Social Security benefits. Benefits are determine by a specific set of criteria issue by the Social Security Administration (SSA) .
key takeaways
- Social Security benefits provide partial replacement income for qualified retirees and individuals with disabilities, as well as their spouses, children, and survivors.
- A person must pay into the Social Security program during their working years and earn 40 credits to qualify for benefits.
- The benefit amount one receives is based on their earning history, their year of birth, and age to claim Social Security.
- Spouses who do not work or collect the required number of credits may receive benefits based on their spouse’s work record.
- Gains can be taxed based on one’s income and tax filing status.
How do Social Security benefits work?
Pay taxes for Social Security and all of its benefits under the Federal Insurance Contribution Act (FICA). The Self-Employed Contribution Act (SECA) (for self-employed individuals).
The Internal Revenue Service (IRS) collects tax deposits and formally assigns them. To the Social Security Trust Fund, which is made up of the Old-Age and Survivors Insurance (OASI). Trust Fund and the Disability Insurance Trust Fund.
You qualify for Social Security old age (or retirement) benefits by paying into the program during your working years. The 40-quarters payroll tax cap from full insured covered pay determines the maximum amount of income that is subject to Social Security payroll tax. The payroll tax cap in 2021 is $142,800 (up from $137,700 in 2020).
The SSA tracks your earnings during your career, indexes each year’s total earnings, and uses the 35 highest-earning years to determine your average indexed monthly income (AIME) . Next, your AIME is used to arrive at your Primary Sum Assured (PIA). The monthly amount that you can start collect when you reach your retirement age.
For individuals born in 1938 or later, the full retirement age is gradually increase to 65. Until it becomes 67 for those born after 1959. You can collect Social Security retirement benefits as early as age 62. But the amount of compensation you need to receive will be reduce earlier and, possibly, for a longer period of time.
In 2021, the maximum monthly Social Security payment for retired workers is $3,148. SSA’s retirement calculator can help you estimate your full retirement age, SSA estimates of your life expectancy for benefits calculation, rough estimates of your retirement benefits, realistic estimates of your retirement benefits based on your work record Retirees with non-FICA or SECA-taxed wages will need extra help because the rules are more complex for those individuals.
If you wait until 70 instead of 62 to take benefits, you’ll get an additional 8% per year, meaning you’ll collect 132% of your PIA for the rest of your life. Once you reach 70 the growth stops.
Spousal and Survivor Benefits
Spouses who didn’t work or who didn’t earn enough credits to qualify for Social Security. On their own can receive benefits at age 62, based on their spouse’s work record. Similar to claiming benefits on record, a spouse’s benefit will be reduce if they claim benefits. Before they reach full retirement age. The highest spousal benefit one can receive is that of their spouse. They get half the benefit at their full retirement age.
When the spouse dies, the surviving spouse is entitle to file for the survivor’s benefit until the age of 60. Benefits will be reduce if they file before they reach their full retirement age. They are allow to switch to their own benefit at any point between age 62 and age 70. If this benefit Survivor’s benefit exceeds.
Those who were marriy for 10 years or more. Those who are divorce and have not remarriy – are entitle to receive spousal benefits and spousal survivor benefits. The rules are complex so review them carefully.
A cost-of-living adjustment (COPI) equivalent to a percentage. Increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Not with growth due to negligible inflation rate.
Social Security Benefits and Taxes
If a taxpayer’s income exceeds $25,000, or a couple marrying jointly exceeds $32,000. They must pay taxes on their Social Security benefits. The portion of benefits that is subject to taxation depends on the income level. Depends, but no one pays taxes on more than 85% of their Social Security benefits, regardless of income. Benefits received due to disability are, in most cases, tax-free. If your child is a dependent or survivor benefits, this money does not go toward your taxable income.
