Question: When does one become ‘fully vested’ in Social Security via the FICA tax deduction from their earned income?
This question has different answers depending on whether we are discussing Retirement, Survivors, or Disability benefits.
Quarters of Coverage
The first concept we have to cover is that of a “Quarter of Coverage” (QC). This is how Social Security determines how much work someone had during his or her working lifetime. Basically, a QC is equal to one quarter of a year, and, beginning in 1978, is based on the amount of the worker’s total wages and/or net earnings from self employment earned during that year.
The chart below shows how much has to be earned in a year to be credited with a single QC. The maximum number of QCs which can be earned in a year is four, so the worker would have to earn four times the amount shown in the chart to be credited with four QCs. The earnings may be earned at any time in a year. A worker who earns $1200 per week would earn his four QCs in the first four weeks of the year.
Amount of earnings needed to earn one quarter of coverage
Prior to 1978, one had to earn $50.00 in a quarter from wages to be credited with that quarter. Self-employment was reported annually, so the self-employed person had to have $400.00 in net earnings for a year to be credited with 4 quarters for that year. Beginning in 1978, employers began reporting wages annually.
Generally, one becomes “fully insured” (that’s the term SSA uses instead of ‘vested’) for retirement benefits when one has 40 quarters of coverage. That takes a minimum of ten years, because, as I said above, it is only possible to earn four quarters in a year. More specifically, a worker needs one QC for each calendar year beginning:
a. after 1950, or
b. after the year he or she attained age 21,
whichever is later, and ending the year in which the worker attains age 62. Note that this is 41 years, but the maximum number of QCs is never more than 40. The worker must have at least 6 QCs in all cases to meet fully insured status. QCs don’t have to be earned during a contiguous period. There can be breaks.
In counting the number of years to determine how many QCs are needed for fully insured status, Social Security will not count any year:
a. if part or all of that year is included in a period of disability, and
b. if entitlement to Social Security benefits or a higher benefit amount would result.
This is a rare situation.
The rules are essentially the same as for Retirement benefits, except that the period of years ends with the year of the worker’s death.
Example: John dies at age 35. He needs 14 QCs to be fully insured (counting from year of attainment of age 22 through year of death, inclusive. If he has this many QCs when he dies, his minor children and in most cases, his surviving spouse, can file for survivors benefits.
For disability benefits, fully insured status is determined differently. One has to have a number of QCs equal to the number of years:
a. beginning with the year of attainment of age 22, and
b. ending with the year in which the first month of the 5 month disability waiting period begins (generally the month following the date of onset.)
The worker has to have at least 6 QCs in all cases to meet fully entitled status.
Example: Bob has been working since he was 21. In July of the year he turned 48, he became disabled and had to stop working. His 5 month waiting period for entitlement begins in August. He needs 27 QCs to be fully insured for disability.
Disability has a second insured status requirement, called “currently insured”, although everyone who works for SSA calls it “20/40.” What this means is that during the 40 quarters ending with the quarter in which the disability waiting period begins, the worker needs to earn 20 QCs.
There are special rules regarding currently insured status for workers who become disabled before age 31. These rules pertain to workers who:
a. are under a disability which began before the quarter in which he or she attained or would attain age 31, and
b. are fully insured, as defined just above.
In order to meet currently insured status, which in this case is called “special insured status”, the worker must have earned an amount of QCs equal to at least one half of the calendar quarters during the period:
a. beginning with the quarter after the quarter in which he or she attained age 21, and
b. ending with the quarter in which the period of disability began.
If the period as defined above contains fewer than 12 calendar quarters (in other words, the worker became disabled in the quarter he attained age 24 or earlier) he or she must have earned 6 QC’s in the 12-quarter period ending with the quarter in which the period of disability began.