| Social
Security was originally introduced in 1935 in the aftermath of the
Great Depression. It was intended to provide a safety net of
income to retired and disabled workers and their families.
Social Security is a mandatory plan, requiring most wage earners to
contribute a percentage of their yearly income to support the
program. In return, they, their spouses and sometimes their
dependents are eligible for retirement, disability and survivorship
benefits.
Today, over 95% of the people over 65
receive a Social Security benefit check. For many this monthly
benefit represents their main source of retirement income.
Contributing to the Social Security Program
Every year you work, you and your employer contribute equal
amounts to Social Security, as required by the Federal Insurance
Contribution Act (FICA). In 2004, 6.2% of your earned income
is withheld from your paycheck to fund Social
Security. Another 1.45% went to Medicare for a total deduction
of 7.65%. Your employer matched your contributions with an
additional 7.65% of your earnings going into the programs
mentioned.
You may be pleased to know that there is an earnings level at
which Social Security payments are no longer required. No
Social Security withholdings are required on any earned income over
$87,900; the amount contributed to Medicare has no earnings cap,
however.
Your Social Security Benefits
If you were born before 1938 you may collect full Social Security
benefits when you turn 65, or you may collect 80% of your benefit if
you retire at 62. For people born after 1938, Normal Retirement
Age (NRA), or the age at which you can receive full social security
benefits, gradually increases upward from age 65 to age 67.
Visit http://www.ssa.gov to
determine your NRA. When you die, your surviving spouse is
entitled to your benefits, unless he or she would collect more based
on their own earnings history.
Taxes on Social Security Benefits
Once you begin receiving retirement benefits, you may have to
include them in your taxable income reported to the IRS each
year.
If your total income for the year, including half of your Social
Security and your tax-exempt earnings, is greater than $32,000
($25,000 for single taxpayers) you will owe federal income tax on
part of your Social Security benefits. The IRS provides you
with a worksheet to figure out how much you must include in your
taxable income each year.
Record of Social Security Earnings
When you get a Social Security card, your Social Security benefit
account is open. It is not activated until you begin earning
income. Once your earnings begin, the amount you contribute
each year is recorded.
The accuracy of this record is important. You can get a
copy of your earnings record from the Social Security Administration
(SSA). Fill out Form 7004 and mail it to SSA. The forms
are available at your local Social Security office or by calling
800-772-1213. If you discover your record is wrong, you can
ask that it be corrected, though you must supply evidence of
errors. The SSA encourages people to check their earnings
records every three years or so, since the earlier a problem is
found, the easier it is to prove and correct.
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