I am frequently asked how social security is calculated, so I thought this topic would be a good one to feature in this week's Frequency Friday! To qualify for social security benefits, you earn "credits" throughout your working life - up to 4 each year. You need at least 40 credits (10 years of work) to qualify for social security benefits. If you continue to work until Full Retirement Age, you will receive the maximum benefit that you are eligible for based on your earnings history. Your Social Security is based on the highest 35 years of earnings. If you have fewer than 35 years of earnings, those years count as $0 and will reduce the monthly benefit amount. If you are self-employed and file as a sole proprietorship, your earnings for social security purposes are the net income reported on Schedule C of your tax return. If you have an S-corporation, your earnings are based on what you pay yourself in W-2 wages as an officer's salary. One of the benefits of having an S-corporation is to control the amount of self-employment taxes paid and minimize the tax exposure. Depending on your earning history, it may be beneficial to increase your salary the closer you get to retirement age. If you are divorced and were married for 10 years, you may be able to claim benefits on your ex-spouse's record if their earning history is higher than yours.

Year of Birth Full Retirement Age 1943-1954 66 1955 -1959 66 + # months 1960 & later 67. If you decide to retire before full retirement age, your SS benefit will be reduced. If you delay benefits past full retirement age, your SS benefits will continue to increase. I highly recommend that you create an account on SocialSecurity.gov to view your earnings history. There are also great calculators that will calculate your SS benefits based on what you plan to earn between now and retirement age. I have found that there is a misconception about how SS benefits are taxed. If you file as an individual, and your combined income, including SS benefits, is between $25,000-$34,000, you will pay income tax on up to 50% of your benefits. If you have more than $34,000, up to 85% of your benefits are taxable. If you file a married filing joint return, and if you and your spouse have income between $32,000-$44,000, 50% of your SS is taxable. Over $44,000, 85% is taxable.

If you start collecting Social Security before full retirement age, your benefits might be temporarily reduced if you earn more than the annual earnings limit. In 2025, the limit is $23,400. If you earn above this limit, $1 in benefits is deducted for every $2 you earn above it.