Haris Ashley
Whether you are currently insured or not is an important question, as it determines your eligibility for Social Security benefits. Social Security is an insurance system that provides benefits during economic hardship. Your insured status is the foundation of any benefit claim. To be eligible for certain benefits, you must be fully insured, while for others, you may only need to be currently insured. Your insured status depends on the number of work credits you have earned, which are based on your annual earnings. These credits are also known as quarters of coverage, and you need at least six within the last three years to be considered currently insured.
| Characteristics | Values |
|---|---|
| Definition | Entitled to retirement payments under federal old-age and survivors insurance or at death having at least 6 quarters of coverage within the 3 years immediately preceding |
| Who is covered | Most company employees, members of the armed forces, and self-employed persons |
| Who is excluded | Railroad workers whose work is covered by the Railroad Retirement Act and federal employees hired before 1984, who are covered under the Civil Service Retirement System (CSRS) |
| Special coverage terms | Hospital interns, farm workers, members of religious orders, student nurses, newspaper vendors, and domestic workers |
| Tax deductions | 6.2% of your pay up to an annual limit of $147,000 (in 2022) |
| Medicare tax | 1.45% (no annual limit) |
| Self-employment tax | 15.3% |
| Maximum credits | 40 credits |
| Minimum credits for eligibility | 6 credits |
| Fully insured | Entitled to full Social Security benefits |
| Currently insured | Entitled to partial Social Security benefits |
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What You'll Learn
Social Security credits
The number of credits required to be eligible for Social Security benefits is 40. Since 1978, an individual can earn up to a maximum of 4 credits per year. The amount of money required to earn a credit changes each year. For 2024, every $1,730 earned equals one credit, whereas in 2025, this amount will increase to $1,810. The amount needed to earn a credit increases slightly each year to adjust for rising average wages. These credits stay on an individual's record forever, even if they leave the workforce for a while or have a career change.
The Social Security Administration (SSA) uses these credits, along with an individual's age, to determine their eligibility for various types of benefits, such as retirement, disability, Medicare, or survivorship benefits for their family. For example, if an individual develops a disability at age 27, they will need 3 years of work (12 credits) out of the past 6 years (between ages 21 and 27).
It is important to note that not all work counts toward Social Security credits. Some employees of state and local governments, federal employees hired before 1984, and public school teachers in certain states and school districts may not participate in the Social Security program. Additionally, there are special rules regarding credits for certain types of work, such as domestic work, farm work, and work for nonprofit or religious organizations that do not pay Social Security taxes.
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Medicare tax
Nearly everyone who works in the US must pay Medicare taxes on all earned income, as there is no income cap or wage base limit. This includes wages, tips, bonuses, commissions, vacation allowances, and other taxable benefits. Medicare taxes are typically withheld from employees' paychecks and forwarded to the government by employers. Under the Federal Insurance Contributions Act (FICA), Medicare taxes are classified as hospital insurance taxes, while Social Security taxes are considered old-age, survivors, and disability insurance taxes. Together, these taxes typically account for nearly 8% of yearly earned income.
High-income earners may be subject to an additional Medicare tax of 0.9% and a net investment income tax of 3.8%. This additional Medicare tax is a surtax implemented through the Affordable Care Act (ACA) to fund Medicare expansion. It applies to wages, railroad retirement (RRTA) compensation, and self-employment income above specific thresholds. For example, single filers earning above $200,000 and married couples filing jointly and earning over $250,000 are subject to the additional Medicare tax.
It is important to note that Medicare taxes are distinct from the Medicare Levy Surcharge, which is applicable in Australia. The Medicare Levy Surcharge rate in Australia is determined based on income and can be 1%, 1.25%, or 1.5% of an individual's income.
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Eligibility for benefits
Health Benefits for Federal Employees (FEHB)
Federal employees, retirees, survivors, and their family members may be eligible for health benefits under the Federal Employees Health Benefits (FEHB) program. Acting postmasters are eligible for FEHB coverage. Members of Congress and designated congressional staff who purchase health benefits through the DC SHOP with a government contribution should refer to their administrative office for guidance.
To be eligible for FEHB coverage, employees are expected to work a minimum of 130 hours per month for at least 90 days, provided they are not covered under the Part-time Career Act. The agency determines whether an employee meets the requirements for coverage.
Medicare Part A and Part B
Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance) are available to eligible individuals. Most people receive Part A for free, but some must pay a premium. To be eligible for premium-free Part A, an individual must meet specific requirements based on their earnings or those of their spouse, parent, or child. They must also have a certain number of quarters of coverage (QCs) and file an application for Social Security or Railroad Retirement Board (RRB) benefits.
Individuals who were initially ineligible for Part B or premium Part A due to coverage under a group health plan or volunteer service outside the US may enroll during a Special Enrollment Period (SEP).
Veterans Affairs (VA) Health Care Benefits
Veterans who meet the basic service and discharge requirements and were exposed to toxins and hazards during their service are eligible for VA health care benefits. This includes veterans who served in combat zones such as the Vietnam War, Gulf War, Iraq, Afghanistan, or any area after 9/11. To qualify, veterans must have served for 24 continuous months or the full period of their active duty. Exceptions apply if the veteran was discharged due to a service-connected disability.
Veterans who meet minimum active-duty service requirements and specific criteria, such as receiving a Purple Heart or being a former prisoner of war (POW), may qualify for enhanced eligibility status, increasing their likelihood of receiving benefits.
Disability Benefits
To be eligible for disability benefits, an individual must meet the Social Security Administration's strict definition of a qualifying disability. This generally means being unable to engage in substantial gainful activity (SGA) due to a medical condition and being unable to adjust to other work. The condition must have lasted or be expected to last for at least a year or result in death.
To qualify for disability benefits, an individual must also have worked long enough and recently enough under Social Security. Work credits are earned based on yearly wages or self-employment income, and the number of credits needed depends on the individual's age when the disability begins.
These scenarios provide an overview of eligibility for benefits in different insurance contexts. It's important to note that specific requirements and processes may vary, and individuals should refer to the relevant organizations for detailed information.
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Fully insured status
In the context of health insurance in the United States, a fully-insured health plan refers to a group health plan where an employer or association purchases health insurance from a commercial insurer to provide coverage for its employees or members. The employer pays premiums to the insurer, which are sometimes passed on to employees through payroll deductions, in exchange for the insurer assuming the financial risk associated with providing coverage and administering the plan. This is in contrast to a self-insured health plan, where the employer's money is used to pay claims and an insurance company simply administers the coverage.
Fully-insured health plans are subject to both state and federal insurance regulations, whereas self-insured health plans are only subject to federal regulations. Fully-insured plans offer financial predictability but potentially higher costs, as premium rates are fixed annually based on the number of enrolled employees and will only change if the number of employees changes. They are also popular because they eliminate the administrative duties and expenses associated with self-insured plans and lower financial risk by transferring the responsibility of dealing with claims to the insurance company. However, they can be rigid as they are not fully customized plans, and insurance companies have free rein over the money collected from premiums.
In the context of Social Security benefits, to be fully insured refers to having earned the maximum number of credits, which is 40, through work subject to Social Security taxes. This entitles you to full Social Security benefits, whereas currently insured status only entitles you to partial benefits. Credits are earned for a certain amount of work covered under Social Security, with a maximum of 4 credits earned per year. You need at least one credit for each calendar year after turning 21, and the year before becoming disabled, with a minimum of 6 credits required.
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Permanently insured status
To understand permanent insured status, it is important to first understand the concept of credits. Credits are earned when an individual has income that is subject to Social Security taxes. These credits are required to receive Social Security benefits, and they can be acquired at any age, even after retirement age. Importantly, once earned, these credits cannot be lost. However, there is a maximum of 40 credits that can be earned.
Now, to be permanently insured, an individual must have earned the maximum of 40 credits. This means that they have reached fully insured status and will not lose their insured status even if they stop working under covered employment. For example, if an individual was born in 1949 and worked under covered employment from 1971 to 1977, earning a total of 28 credits, they would be permanently insured.
On the other hand, if an individual has less than 40 credits, they may still qualify for currently insured status. This means that they or their eligible survivors are entitled to partial Social Security benefits, such as survivor's benefits, disability benefits, or a lump-sum death benefit. To achieve currently insured status, an individual must earn at least six credits during the relevant period before their death, eligibility for retirement insurance benefits, or eligibility for disability benefits.
It is worth noting that certain groups may be excluded from Social Security coverage, such as railroad workers and federal employees hired before 1984. Additionally, special coverage terms apply to hospital interns, farm workers, members of religious orders, student nurses, newspaper vendors, and domestic workers.
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Frequently asked questions
Being currently insured means that you are entitled to partial Social Security benefits based on your earnings record, such as survivor's benefits, disability benefits, and a $255 lump-sum death benefit. You will not be entitled to old-age retirement benefits.
To be currently insured, you must have earned at least 6 work credits during the 13-quarter period ending with the calendar quarter in which you die, become entitled to retirement insurance benefits, or become entitled to disability benefits.
Covered workers receive credits based on their annual earnings. Every year, the earnings necessary to earn one credit increase according to how much the national average wage has increased. For example, in 2022, you earned one credit for every $1,510 in earned income, up to a maximum of four credits per year.
