What counts as earnings for Social Security and how are they taxed?

Social Security taxes apply to earned income up to the annual wage base: $168,600 in 2024 (adjusted annually for wage growth). The tax rate is 12.4% split: 6.2% employee + 6.2% employer. Self-employed individuals pay the full 12.4% (self-employment tax), but can deduct the employer-equivalent half. What counts: wages, salaries, bonuses, commissions, tips, and net self-employment income. What doesn't count: investment income (dividends, interest, capital gains), rental income, pension/annuity payments, government transfer payments, and income above the wage base. The earnings test: if you claim Social Security before FRA and continue working, benefits are temporarily reduced. Under FRA for the entire year: $1 withheld for every $2 earned above $22,320 (2024). In the year you reach FRA: $1 for every $3 earned above $59,520 (applies only to months before FRA). At and after FRA: no earnings test — earn unlimited income with no benefit reduction. Important: money withheld by the earnings test is NOT lost — your benefit is recalculated at FRA to give credit for the months of withheld benefits, resulting in a higher monthly benefit going forward. It's effectively a forced delay.

How do spousal and survivor benefits work?

Spousal benefits: a spouse can receive up to 50% of the higher earner's PIA, even if the spouse has no work history. Requirements: married for at least 1 year (or parent of the worker's child), spouse must have filed for their own benefits (deemed filing rules apply), and the spousal benefit only pays the difference if the spouse's own benefit is less than 50% of the higher earner's PIA. Ex-spouse benefits: available if marriage lasted 10+ years, the ex-spouse is unmarried, and both are 62+. Claiming on an ex-spouse does NOT affect the ex-spouse's benefit or their current spouse's benefit. Survivor benefits: when a spouse dies, the surviving spouse can receive up to 100% of the deceased's benefit (including any delayed retirement credits). Available at age 60 (50 if disabled). If the survivor has their own benefit, they receive the higher of the two (not both). Strategy: a lower-earning spouse can claim their own reduced benefit at 62, then switch to the full survivor benefit at FRA if the higher earner dies — or vice versa. Children's benefits: children under 18 (or 19 if in high school) can receive 50% of a living parent's benefit or 75% of a deceased parent's. Family maximum: total family benefits are capped at 150-180% of the worker's PIA (computed using a formula based on PIA bend points). Planning implication: the higher earner should generally delay to 70, as this maximizes not just their own lifetime benefit but also the survivor benefit — which could be paid for 20-30 years to a surviving spouse.

How is my Primary Insurance Amount (PIA) determined?

Your Primary Insurance Amount (PIA) is calculated based on your Average Indexed Monthly Earnings (AIME) from your 35 highest-earning years, indexed for wage growth. The AIME is then subjected to a progressive formula with "bend points" that are updated annually. For example, for someone becoming eligible in 2024, the PIA is 90% of the first $1,174 of AIME, plus 32% of AIME between $1,174 and $7,078, plus 15% of AIME over $7,078. This progressive formula ensures lower earners receive a higher percentage of their past earnings.

What is my Full Retirement Age (FRA) and why is it important?

Your Full Retirement Age (FRA) is the age at which you are entitled to 100% of your Primary Insurance Amount (PIA). This age varies by birth year; for those born between 1943 and 1954, it is 66, gradually increasing to 67 for those born in 1960 or later. Claiming benefits before your FRA results in a permanent reduction, while delaying benefits past your FRA (up to age 70) earns you Delayed Retirement Credits.

How do Social Security benefits increase if I claim after my Full Retirement Age?

If you delay claiming Social Security benefits past your Full Retirement Age (FRA), your benefit amount increases through Delayed Retirement Credits (DRCs). These credits permanently boost your monthly payment by 8% for each year you delay, or 2/3 of 1% (approximately 0.667%) for each month. This accrual continues until you reach age 70, at which point no further credits are earned, making age 70 the maximum age to maximize your individual benefit.

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