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Answer Frequently Asked Questions about Social Security

There is a great deal of important information about Social Security that may be of interest to you. The following are a few of the more frequently asked questions and their answers.

If I have a full-time job and I have a small business on the side, how much do I pay for Social Security?

If you have both a full-time job and you have a small business on the side, no more than $94,200 of your combined earnings is subject to the FICA tax in 2006. However, additional wages are subject to the Medicare tax.

How does Social Security account for the increasing cost of living expenses?

Benefits are increased annually on January 1 to reflect increases in the cost of living.

Do unearned income and asset ownership affect how much one pays in Social Security?

Unearned income, such as interest earned on investments and assets, has no effect on eligibility for Social Security benefits.

How does earned income affect Social Security before age sixty-five?

Earned income has an effect on retirement benefits and survivor benefits paid to individuals who are under age sixty-five if such earnings exceed their earnings limitations. When individuals begin to take advantage of retirement benefits, the earnings limit is applied as a monthly amount in the months preceding the sixty-fifth birthday.

How do I qualify for benefits?

To qualify for full benefits, you must meet the quarters-of-coverage requirement, which means that you must earn at least the required minimum during each calendar quarter (every three months). For 2006, the quarter-of-coverage minimum was $920. You need to meet this minimum for at least forty quarters to qualify for full benefits; this is equivalent to ten years of work. Earning beyond forty quarters will not increase your benefits.

What is an annual Social Security statement, and when will I receive it?

An annual Social Security statement shows your quarters-of-coverage credit, the amount you have paid in Social Security taxes, and the amount of your estimated benefit. You must be at least twenty-five to receive a statement. The statement is sent to you each year three months before your birthday.

How can I apply to receive benefits?

You can complete the application process at a Social Security office, over the telephone, or via the Internet. When you apply, you may need to show verification of your age by providing your birth certificate or your Social Security card.

When will I receive my retirement benefits?

Benefits are paid once a month on either the second, third, or fourth Wednesday of the month, depending on your birth date. You can choose to receive your payment as a check or through direct deposit.

Do I have to pay federal income taxes on my retirement benefits?

About 20 percent of those who receive Social Security benefits must pay some federal taxes on the benefit. Individuals must pay some federal taxes on Social Security benefits when they earn substantial income (including pension and wages) in addition to the Social Security benefit. See an accountant to discuss your personal situation.


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