Only earned income, your wages, or net income from self-employment is covered by Social Security. If money was withheld from your wages for “Social Security” or “FICA,” your wages are covered by Social Security. This means you are paying into the Social Security system that protects you for retirement, disability, survivors, and Medicare benefits.
Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes. You may need to pay income tax, but you do not pay Social Security taxes.
Certainly! The excerpt you've provided touches upon the specifics of what is covered by Social Security in terms of income and what isn't. As an enthusiast in finance and social security systems, I can help break down the concepts involved.
-
Earned Income: This refers to income derived from work or active participation in a business. It encompasses wages, salaries, bonuses, tips, and net earnings from self-employment. This is crucial for Social Security coverage.
-
Social Security and FICA: Both are linked to the system that funds retirement, disability, survivors, and Medicare benefits in the United States. Money withheld from wages labeled as "Social Security" or "FICA" implies that these earnings are being contributed to the Social Security system.
-
Coverage by Social Security: When your wages have Social Security deductions, you're essentially contributing to the system, which in turn provides protection and benefits for retirement, disability, survivors, and Medicare.
-
Exclusions: Other sources of income such as pension payments, annuities, interest, dividends from investments, or passive income are not considered earnings for Social Security purposes. While these may be subject to income tax, they don't fall under the umbrella of Social Security taxes.
Understanding what income is included or excluded from Social Security coverage is vital for individuals planning their retirement or assessing their eligibility for Social Security benefits. It's crucial to note these distinctions to make informed financial decisions for long-term security.
Feel free to ask if you'd like more detailed information about any specific aspect of Social Security or related financial topics!
