Social Security Work Credits: How You Earn Eligibility for Benefits

Social Security retirement and disability benefits are not automatic -- you must earn eligibility through work credits accumulated over your career. Understanding how credits work helps you plan for retirement and know what benefits you're entitled to.

Work credits (formerly called "quarters of coverage") are the basic unit of Social Security eligibility. You earn credits by working and paying Social Security taxes (FICA).

How credits are earned (2017):

• You earn one credit for every $1,300 in covered earnings
• Maximum of 4 credits per year
• The earnings amount required per credit increases slightly each year with wage inflation

Example: If you earn $5,200 in 2017, you earn 4 credits (the maximum for the year).

Retirement benefits: You need 40 credits (10 years of work) to qualify for Social Security retirement benefits. The 40 credits don't need to be consecutive -- they can be accumulated over your entire working life.

Disability benefits (SSDI): The number of credits required depends on your age when you become disabled. Generally, you need 40 credits, with 20 earned in the last 10 years. Younger workers need fewer credits.

Survivor benefits: Your family members may qualify for survivor benefits based on your work record. Fewer credits are required -- as few as 6 credits for young workers.

Medicare eligibility: 40 credits also qualifies you for premium-free Medicare Part A. If you have fewer than 40 credits, you can still get Part A by paying a premium.

Spousal benefits: If you don't have enough credits for your own benefit, you may qualify for a spousal benefit based on your spouse's work record -- up to 50% of their full retirement benefit.

Divorced spouse benefits: If you were married for at least 10 years, you may qualify for benefits based on your ex-spouse's record.

Survivor benefits: If your spouse dies, you may qualify for survivor benefits based on their record.

Buying into Medicare Part A: If you have fewer than 40 credits, you can enroll in Medicare Part A by paying a premium ($227/month for those with 30-39 credits, $413/month for those with fewer than 30 credits in 2017).

Work credits determine eligibility -- not the amount of your benefit. Your benefit amount is based on your earnings history (specifically, your highest 35 years of earnings, adjusted for inflation).

Having more than 40 credits doesn't increase your benefit. What matters for the benefit amount is how much you earned, not how many years you worked.

You can check your accumulated work credits and estimated benefits at ssa.gov/myaccount. Create a my Social Security account to view your earnings history and benefit estimates.

Review your earnings record periodically to catch any errors. Errors in your earnings record can reduce your benefit -- and they're easier to correct when the employment records are recent.

Self-employed individuals pay both the employee and employer portions of Social Security taxes (15.3% combined). Self-employment income counts toward work credits the same way as wages.

If you're self-employed, make sure you're reporting your income accurately on Schedule SE -- this is what determines your Social Security credits and future benefit amount.

This article is for educational purposes only and does not constitute financial or legal advice. Consult a financial advisor for personalized guidance.