Social Security earnings are the earnings that a worker in the United States receives if he or she becomes disabled, or when the age of 62 has been reached. Workers have to pay in to the Social Security system, as well as meet other criteria, to be eligible for Social Security payments, which are based upon their earnings over time. Earnings are calculated and payments are made by the Social Security Administration, which is a federal department.
Though many people own their own businesses, and some work as independent contractors, the majority of workers in the US are employed by a company or another individual. Workers and their employers are required to contribute an equal amount of money to the Social Security system. This amount is based on earnings as well as the Federal Insurance Contribution Act (FICA), which is set by the federal government. Higher income earners get a break wherein they do not have to contribute to the system if their earnings are over a certain amount, generally over $100,000 US Dollars (USD) per year.
Individuals who are self-employed, or who work as independent contractors, and pay all of their own taxes also contribute to the system. They pay a higher amount of Social Security taxes on their earnings as compared to people who work as regular employees. Self-employed people and independent contractors can benefit from paying on their earnings in the long run because Social Security benefits can help provide retirement income.
Most people pay into the Social Security system during their working years, so they accrue Social Security benefits. These benefits provide the basis for retirement and disability income for a large number of American citizens. Spouses, children, and other dependents are often eligible to receive payments depending on the amount of taxes paid on Social Security earnings over time.
Social Security earnings are tracked and recorded by the Social Security Administration. Social Security Numbers are assigned to each US citizen for record keeping and identification purposes. At anytime an individual may request a Social Security Statement from the department to review his or her earnings and contributions to the system. The statement includes a summary with a breakdown of estimated benefits and when the person would be eligible for these benefits.
Taxes on Social Security earnings are a requirement of all working US citizens, with some exceptions. Members of the US Congress do not pay taxes on their Social Security earnings, nor do they receive the benefit, unless they paid on earnings in previous years. Also, some state and local government entities do not require employees to pay on earnings, but instead they enroll the workers in a pension plan and take out monthly payments for the pension. Some ministers and religious leaders are also exempt from paying on earnings; this exemption usually requires the filing and approval of paperwork with the Internal Revenue Service as well as the Social Security Administration.