When the stimulus check details were announced, I noticed a sharp uptick in questions about Social Security retirement, Social Security Disability (SSDI) and Supplemental Security Income (SSI) benefits. Mainly, folks wondered, “What’s the difference?”
Here’s a quick breakdown.
What are Social Security retirement benefits?
Wages and self-employment income are subject to Social Security and Medicare taxes. Together, Social Security and Medicare taxes are known as FICA (Federal Insurance Contributions Act) taxes and are taken right out of your paycheck. Taxes on self-employment income are separately referred to as SECA (Self-Employment Contributions Act) taxes since self-employed persons pay both the employee and employer contributions.
If you’re employed, you pay Social Security tax (6.2%) as the employee, and your employer also pays the same rate of tax (6.2%); again, if you’re self-employed, you pay both portions.
Unlike Medicare, Social Security taxes are subject to a wage cap. In other words, you pay Social Security taxes on your earnings until you hit a magic number. After that, your wages are no longer subject to Social Security taxes. For 2020 that magic number is $137,700. That means that whether you made $1,000 or $100,000, you will pay Social Security taxes on that income. But if you earn $137,701? You’ll pay Social Security taxes on $137,700, but not on the extra dollar. And if you earn $1,137,700? You’ll pay Social Security taxes on $137,700 but not on the extra million.
Your employer collects those Social Security payments and remits them to the government on your behalf (or you pay them directly if you’re self-employed). These taxes are sometimes referred to as “trust fund” taxes and are credited towards your retirement benefits.
The number of credits you need to get retirement benefits depends on when you were born: If you were born in or after 1929, you need 40 credits, or 10 years of work, to collect retirement benefits. The amount of your benefits depends on how much you earned during your lifetime. Remember, while you’re working, you are paying a percentage of your earnings in Social Security taxes, which means that more money (and thus, more tax) should mean more benefits. If you are out of work for some time or earn less money, your benefits should be lower.
It’s also one of the reasons you should be careful about receiving pay under the table: those funds (unless you report them) won’t count towards your credits.
The age at which you decide to retire also affects your benefit. If you retire at age 62, the earliest possible Social Security retirement age, your benefit will be lower than if you wait. But if you were born in 1953 or earlier, you’re eligible for your full Social Security benefit now. The full retirement age is 66 if you were born from 1943 to 1954 and increases gradually if you were born from 1955 to 1960 until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67.
Other family members may be entitled to benefits, including spouses who never worked or have low earnings. If you’re eligible for both your own retirement benefits and spousal benefits, Social Security will pay your own benefits first. If your spousal benefits are higher than your own retirement benefit, you’ll get a combination of benefits equaling the higher spouse benefits.
Overall, benefits typically work out to about 40% of preretirement income. As of last quarter, the average monthly check for retired workers, excluding spouses and dependents, totaled $1,463.19 (or $17,558.28 per year).
Once you reach retirement age, you may have to pay income tax on your benefits depending on your filing status and how much other income you receive. For more on whether your Social Security benefits are taxable, click here.
What are SSDI benefits?
SSDI is the abbreviation for Social Security Disability Insurance. Social Security pays benefits to people who can’t work because they have a medical condition that’s expected to last at least one year or result in death. Yes, that sounds ominous, but that’s the definition of disability under federal law.
SSDI is available for workers that, like Social Security retirement beneficiaries, have earned a sufficient number of credits. To qualify, you normally must meet two different earnings tests:
- A recent work test, based on your age at the time you became disabled; and
- A duration of work test to show that you worked long enough under Social Security.
(Certain blind workers have to meet only the duration of work test.)
The tests are based on your age at the time of your disability. But, generally, you can take the year you became disabled and subtract the year you attained age 22, to get the number of quarters of coverage necessary to meet the duration requirement.
Here’s a quick example: Let’s say you were born in 1970, and you became disabled in 2020. The math is 2020-(1970+22) = 28 quarters (or seven years).
When you apply, Social Security will forward your information to a state agency to make the initial disability determination decision. Your doctors don’t decide if you’re disabled. The state agency staff will review your information and may ask you to go for another examination.
- If your application is approved, you’ll get a letter showing the amount of your benefit, and when your payments start.
- If your application isn’t approved, the letter will explain why and tell you how to appeal the determination if you don’t agree.
If you are getting other benefits, like worker’s compensation, the total amount of SSDI available to you may be affected.
Like Social Security retirement benefits, SSDI benefits are typically not taxable. However, if you receive SSDI and another source of income, your benefits may be taxed.
What Are SSI benefits?
SSI is the abbreviation for Supplemental Security Income. SSI gives monthly cash assistance to people with limited income and resources who are age 65 or older, blind or disabled. Children with disabilities can get SSI, too.
To qualify, you must meet the income and resources tests:
- Typically, your countable income must not exceed the federal benefit rate (FBR). The FBR for 2020 is $783 per month for individuals and $1,175 for couples. If you make more, you may be eligible for a decreased benefit. Generally, the more countable income you have, the less your SSI benefit will be.
- Your resources (like real estate, bank accounts, cash, stocks, and bonds) must be $2,000 or less ($3,000 for a couple). Your resources do not usually include the home and land where you live; life insurance policies with a face value of $1,500 or less; your car; burial plots for you and members of your immediate family; and up to $1,500 in burial funds for you and up to $1,500 in burial funds for your spouse.
Some states add a supplement, making payments and allowable income levels higher. States that do not have a supplement include Arizona, Mississippi, North Dakota, and West Virginia.
If you get SSI, you may also be able to get help from your state or county, including Medicaid, food, or other social services (call your local social services department or public welfare office for information). Additionally, if you get SSI, you may qualify to get help to buy food through the Supplemental Nutrition Assistance Program (SNAP). If everyone in your home is applying for or getting SSI, you can apply for SNAP through your Social Security office.
For federal purposes, SSI benefits are not taxable.
This meant to be a quick primer, but as you might imagine, the specifics are important (it’s a government program and they like rules). For more on Social Security retirement, SSDI and SSI benefits, contact the Social Security Administration (https://www.ssa.gov/agency/contact/).
And one more thing: YES, all of these folks (those receiving retirement, SSDI, and SSI benefits) are entitled to a stimulus check so long as they meet the other criteria.