Guest post from Devin Carroll at the Social Security Intelligence blog.
If your Social Security earnings have been recorded incorrectly, it could make a big difference in your benefit amount. You need to check for errors TODAY! Whether you are close to retirement, or in your early working years, this is not something that can wait. Why? The Social Security Administration imposes time limits on correcting your earnings record. Even if it’s not your fault!
Mistakes in the Social Security earnings record are fairly common. For proof, look no further than the Earnings Suspense File. (This is where earnings reports are stored that have a mismatched name and SSN combination.) Since the inception of Social Security, there have been a total of $1.2 trillion in wages that could not be matched to an earnings record and thus were added to the Earnings Suspense File. In tax year 2012 alone, the Social Security Administration reported $71 billion added to the file!
Those numbers are astronomically high! Why are there so many mistakes? Most of these mistakes are not the fault of the Social Security Administration. A good number of the mismatches are due to employer reporting errors or simple name changes. The Social Security Administration has a pretty good system for figuring these mistakes out and assigning the earnings to the correct record. But nearly half of the mismatches are never corrected. Some of these are due to the fraudulent use of Social Security numbers. (For example, illegal immigrants using stolen SSNs to gain employment.) The other mismatches are often legitimate earnings that just never get corrected. Unless you’re vigilant about monitoring your earnings record, you could have earnings gaps that could have a substantial impact on your Social Security benefit calculation.
Why A Social Security Earnings Mistake Matters
A mistake in your earnings calculation can make a big difference. How? It all goes back to how your benefit is calculated. The Social Security Administration uses your highest 35 years of earnings as a cornerstone of the benefit calculation. If any of these 35 years are incorrect or missing altogether, the average is skewed. One year of missing earnings can make a difference of $100 per month (or more!) in your benefit amount. Over your lifetime, that could be nearly $30,000 in missed benefits from one year of missing earnings.
If there is a mistake, the burden is yours to prove it. You’ll need to locate documents that prove the error such as tax forms, W-2 forms or pay stubs. If you can’t find these, Social Security says to write down the name and address of your employer, the dates you worked there, how much you earned and the name and Social Security number you were using while you were employed, and the agency will use this information to investigate the problem. https://secure.ssa.gov/poms.nsf/lnx/0500820130
Time Limit For Corrections
The Social Security Administration’s language on the time limit for fixing an earnings record is incredibly clear. “An earnings record can be corrected at any time up to three years, three months, and 15 days after the year in which the wages were paid or the self-employment income was derived.”
How’s that for clarity! Without an exception, you have a little over 3 years to fix earnings record mistakes.
Unfortunately, the rules on exceptions aren’t as clear.
After the time limit has passed, earnings records can only be revised under the conditions described below and in §1425:
To correct an entry established through fraud;
To correct a mechanical, clerical, or other obvious error;
To correct errors in crediting earnings to the wrong person or to the wrong period;
To transfer items to or from the Railroad Retirement Board (if reported to the wrong agency), or to add railroad earnings to Social Security earnings records when the law permits;
To add wages paid in a period by an employer who made no report of any wages paid to the worker in that period, or if the employer is increasing the originally reported amount for the period;
To add or remove wages in accordance with a wage report filed by the employer with IRS; or, if a State or local governmental employer, with SSA if the report is filed within the time limitation specified for assessment, refund, or credit under a State’s coverage agreement;
To add self-employment income in a taxable year if an individual or the individual’s survivor establishes that:
A self-employment tax return for that year was filed before the time limit ran out; and
Either no self-employment income for that year has been recorded in the individual’s earnings record, or the recorded self-employment income for that year is less than the amount reported on the self-employment tax return; or
To add self-employment income for any taxable year up to the amount of earnings that were wrongly recorded as wages and later deleted. This can be done only if a tax return reporting such self-employment income is filed within three years, three months, and 15 days after the taxable year in which the earnings wrongly recorded as wages were deleted. The self-employment income must:
Be for the same taxable year as the year in which the wages were removed; and
Have already been included on the individual’s Social Security record.
Prior to the expiration of the time limit the worker or the worker’s survivor has:
Applied for benefits and stated that the earnings for a year(s) were incorrect; or
Requested a revision of his or her earnings record for a year(s).
So you may be asking yourself, why all the fuss and urgency? Here’s why. Like many of the Social Security rules, the rule on time limits are broad and sometimes not completely understood by the technicians at the Social Security Administration. I’ve seen cases where there was a clear exception, but the technician refused to enter the earnings because they did not understand the rule. Thankfully, this client was able to get help from a financial planner who understood the rules and helped the client draft a request for review letter. A few weeks later, the earnings were back where they should be…on the client’s earnings history.
How do you prevent all that drama? Check your earnings history today! It’s easy.
You can find this in your Social Security statement. (If you’re younger than 60, you only get these every 5 years. For those over 60, you get one every year.) If you don’t have a recent statement, don’t let that stop you. Go online and instantly print your most recent statement.
To create a My Social Security account, visit www.ssa.gov/myaccount. You’ll need to provide a Social Security number, mailing address and a valid e-mail address. You’ll also need to be able to answer questions that only you are likely to know and it needs to match the information on file with Social Security.
In addition to checking your earnings history, there are many other other reasons to set up your online account. You can:
- Get an estimate of your future benefits
- Get a letter with proof of your Social Security benefits
- Start or change your direct deposit
- Get a replacement SSA-1099 or SSA-1042S for taxes
- Change your address
Please, please, please…check your Social Security earnings history today! But don’t stop there. Urge your friends, family members and clients to do the same. Better yet, just share this article!
Social Security’s Request For Correction of Earnings Record
IRS Form 4506-T Request for Transcript of Tax Return
Devin Carroll the Chief Compliance Officer and half partner of Cogent Advisory Group, an SEC Registered Investment Advisor. Additionally, Devin is a financial advisor at Carroll Investment Management and writes about Social Security, retirement issues and personal management at www.socialsecurityintelligence.com.