When figuring your social security retirement benefits, there are several factors that must be considered. These are just a few of those factors. For even more information, look at the social security web site.
Wages as an Employee
As an employee, your wages are usually covered by Social Security and Medicare. Your employer deducts a percentage from your wages for Social Security and Medicare plus matches this percentage which is paid to the Social Security Administration when reporting your earnings.
Self Employed Income
If you are self employed, you must report all earnings over $400 per year and pay the Social Security and Medicare tax along with your income tax.
Military Service
Military personnel who had active duty after 1957 paid Social Security taxes and these will be included in your Social Security record. Inactive duty has been covered since 1988. Persons who served from 1940 through 1956 didn't pay directly into social Security but once they apply for their benefits, their records are credited with special earnings that count towards payable benefits.
There are special earnings (under certain circumstances) for periods of active duty from 1957 through 2001. These earnings can be credited to your military pay record and may help qualify for Social Security or increase your benefits. These are added to your report when you file for Social Security benefits. In January 2002, Public Law 107-117, the Defense Appropriations Act, stopped the special extra earnings that have been credited to military service personnel.
Pensions and Annuities
Income from pensions and annuities are not considered earned income and are therefore not subject to social security taxes. The same is true for interest and dividend income. Only earned income is subject to social security tax and used in figuring your benefits.
Part 3 will look at both the Windfall Elimination Provision and the Government Pension Offset.