Time Limit for Reporting Social Security Earnings

Need to file some missing tax returns? If you're self-employed, you'll want to pay attention to the time limit for reporting earnings for Social Security purposes.

Time Limits for Reporting Social Security Earnings

There's a time limit for reporting Social Security earnings and getting credits towards future Social Security benefits. The time period is 3 years, 3 months, and 15 days following the end of the calendar year in which you earn the income. As long as your Social Security earnings are reported within this time period, you'll get credit towards future Social Security benefits. If your earnings are not reported within this period, you will not accumulate any Social Security credits for the unreported income.

Filing Tax Returns in a Timely Manner is Important for Earning Social Security Credits

This three year period is especially crucial for self-employed individuals who need to file tax returns passed the April 15th deadline. That's because the only way for the Social Security Administration to know how much you earned for Social Security purposes is based entirely on the income you report on your tax return.

How Social Security Earnings are Reported

Wages and net earnings from self-employment are counted towards your Social Security earnings. Wages are reported to the Social Security Administration using Form W-2. So for employees, your Social Security wages will be reported on box 3 of Form W-2 and the Social Security tax you paid is reported in box 4. Employers must file W-2 Forms with the Social Security Administration no later than March 31st for the previous calendar year. That means wages should always be credited to your account for Social Security purposes within this 3 year time period.

Self-employment earnings (from working as an independent contractor, freelancer, or running your own business), however, are self-reported. The earnings are reported using Schedule C and attaching it to Form 1040. Self-employed farmers using Schedule F. Only the net earnings from the Schedules C or F count towards your Social Security. And the Social Security tax is figured using Schedule SE. Some self-employed people need extra time to gather all the information necessary to file an accurate tax return. And so some people end up filing late, sometimes years after the original deadline has passed. In this situation, it is important to file a tax return before the 3 year time limit expires for getting Social Security credits.

The Law Behind the 3 Year Time Limit

The three year period for claiming Social Security credits is found in section 205(c)(1) of the Social Security Act (also called 42 U.S.C. 405). This law which provides a period of limitations of three years, three months, and fifteen days to establish self employment earnings for the purpose of earning Social Security credits. Tax returns not filed within that period of time are denied to be evidence of earnings for the purpose of establishing Social Security eligibility. There have been court cases on this point where judges ruled that returns had to be filed within that period of time in order to earn the credits.

Further, Section 205(c)(5) spells out when the Social Security earnings can be corrected and under what circumstances.

Tips to Ensure You Get Proper Social Security Credits

The Social Security Administration mails out an annual Social Security Statement to people age 25 and older who have not yet received benefits. You should check this annual statement to ensure that your wages and net self-employment earnings are properly reflected on this statement. If your earnings are not correct, you will need to act before the 3-year time limit expires to ensure you get credit for all your earnings.

Also, if you haven't filed a tax return and you were self-employed, you should be sure to file before the time period expires. The time limit of 3 years, 3 months, and 15 days gives a self-employed person until March 15th of the third year following the end of the calendar year to file a tax return and still receive credit for Social Security purposes.

What are Social Security Credits?

Each year, people earn a certain number of "credits" based on wages and net self-employment earnings. People can earn up to four Social Security credits per year, and will need earn at least 40 credits in order to be eligible for retirement benefits. What this means, is that self-employed people who need additional credits for Social Security purposes should file within the 3-year, 3-month, and 15-day time period.

Resources from the Social Security Web site

How Your Earn Credits
Your Retirement Benefit: How It Is Figured
Time Limit for Correcting Earnings Records
Social Security Act section 205

Resources for Filing Late Tax Returns

Back Taxes: Tips for Filing Late Tax Returns
3-Year Time Limit for Claiming Tax Refunds
Dealing with IRS Assessments
Handling IRS Tax Debts