You may not understand the importance of your Social Security statement, especially if retirement plans are years away. Your Social Security statement is an annual report sent by SSA for your review. This statement provides a recap of annual earnings for each employment year. When you retire, Social Security uses this information to calculate benefits based on your working years.
It’s important to review the Social Security statement for accuracy. Focus on the previous three years’ reported earnings because there’s actually a statute of limitations to consider. Learn more about SSA’s income reporting statute of limitations here. Your time limit to advise Social Security of errors is about three and one-third years from the end of the statement calendar year. Your Social Security statement reflects “Social Security earnings” that are credited towards your future Social Security benefits. If Social Security doesn’t have an accurate reflection of your earnings in the time period, you won’t receive credits for income they don’t know about.
Your Social Security Statement and W-2 Earnings
Social Security Administration receives information about your wages from IRS Form W-2. Box 3 on your W-2, along with Social Security tax paid for the tax year, is recorded in box 4. If you’re employed, your employer files W-2 forms with SSA no later than the end of Q1 for the previous calendar earnings year. Wages must be credit to your SSA account within a three-year period.
If you’re self-employed–or working as a freelancer, farmer, or independent contractor–you must self-report annual wages to IRS. You report income on Schedule C or Schedule F, if you’re a farmer, along with Form 1040, and submit this information to the Internal Revenue Service. SSA earnings and taxes to Social Security are calculated with Schedule SE (section A/line 6 part 1 Schedule SE). Since some self-employed persons require additional time to file a tax return, it’s possible to miss the three-year deadline for submitting earnings to SSA.
Review Section 205 of the Social Security Act here [42 USC 405] to learn more about statute of limitations regarding your Social Security credits. If your tax returns aren’t filed within this critical statute of limitations, SSA doesn’t have evidence of earnings for future Social Security benefits. Because courts around the country have ruled that tax returns must be filed within the statute of limitations, you have a relatively narrow window in which to correct Social Security earnings.
Review Your Social Security Statement and Credits
Most taxpayers don’t receive a paper copy of their Social Security statement in the mail each year. To keep tabs on your Social Security earnings, you must sign up for a Social Security My Account on the SSA website. Check your Social Security statement at least once a year to make sure that earnings and net income from self-employment is filed within the statute of limitations. If your Social Security statement is wrong, SSA needs to hear about it from you.
At this point, you’re probably wondering about how Social Security credits are calculated. Click on SSA’s latest Social Security credits brochure to learn more. Every year, you earn a specific number of SSA credits. These credits are calculated according to your employment earnings or net after-expenses self-employment income.
You may earn up to four credits each year and, in order to have eligibility for Social Security benefits, you must earn 40 credits during your work history. If you’re self-employed, earning these credits within the statute of limitations may be especially challenging. Mark your calendar to ensure that you don’t forego these credits.
Review Your Social Security Statement Regularly
If your earnings and Social Security statement are exactly the same, that’s good news. In the rare event your earnings differ from your Social Security statement, contact SSA immediately and request a correction to your earnings history. Establish a Social Security My Account now and review your Social Security statement to ensure your maximum benefits are available when you need them.