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I am an employee of a US state government which does not participate in Social Security, so neither I nor my employer pay Social Security taxes. (My employer offers a defined-contribution plan instead.)

Prior to this job, I spent a few years working for private employers, in which I did pay Social Security taxes. However, I have fewer than 40 Social Security credits, according to my SSA statement, which I understand is the minimum to be eligible to receive retirement benefits.

Assuming I continue working for my current (state) employer for the rest of my career, I will not earn any more credits. This suggests that, despite having paid some five figures of Social Security taxes (and the same from my previous employers), I will never be eligible to receive any Social Security retirement benefits.

Is this analysis correct, or is there some other way for me to earn some sort of benefit in exchange for the taxes I have paid?

  • As well as the possibility of a second job with a non-government employer for FICA, if you run your own small (even tiny) business your net self-employment income is subject to 'self-employment tax' (SECA) which equals the combined employer+employee FICA tax on payroll income, and gets the same credits toward SS/Medicare. Depending on your situation this might be an easier, more flexible method -- or it might not. Plus starting this year (2018) TCJA'17 reduces your income tax on passthrough self-employment income (up to a limit you are unlikely to hit for anything parttime). – dave_thompson_085 Apr 27 '18 at 12:24
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Your analysis is correct.

If you receive a pension or retirement benefits from an employer who did not participate in Social Security, then even if your other employment (covered by Social Security) is enough to get you Social Security benefits, your Social Security benefit will be reduced because of the Windfall Elimination Provision enacted by Congress. Since you don't have the 40 quarters of earnings to qualify for Social Security benefits, you are out of luck entirely.
Note added as an edit in response to the OP's comment: If you do manage enough earned income on the side between now and retirement have 40 quarters of SS-covered earning, but the earnings in these later years are relatively small (e.g. only a little more than the $4800 mentioned in the OP's comment), then be aware that the Social Security benefit will be small (the benefit does depend to some extent on the total (SS-covered) earnings record), and the reduction due to WEP might wipe out most of the benefit.

Furthermore, if you are receiving a pension from a government source (not covered by Social Security), any benefits that you might receive as the spouse (or widower or widow) of a person who is covered by Social Security are reduced by an amount equal to two-thirds of the pension. This is called the Government Pension Offset Rule. It does not matter if you opted for a lump-sum payout instead of a pension from your Government employer: the Social Security Administration assumes that you had opted to take a pension and uses that amount in determining the reduction in the Social Security benefit. You might find the following description helpful towards understanding the details.

  • Thanks. Upon further investigation, I found that you earn 1 credit per $1200 of earnings, up to 4 per year. So if I were to take side jobs that earn at least $4800 during a few years between now and retirement, I could get up to 40 credits and at least I would get some benefits, even with the WEP provision. I am still having some trouble understanding how the WEP would be figured when receiving distributions from a DCP plan rather than a traditional pension (which my employer does not offer). – Nate Eldredge Sep 11 '14 at 20:22
  • @NateEldredge The State Universities Retirement System of Illinois (which I am familiar with) offers only two options: whatever money is in the DCP plan is converted into an annuity (there are sub-options for the annuity depending on whether the retiree is married, etc) in which case that becomes your pension, or take a lump-sum payout. At least in this instance, it is not a case of taking distributions as needed (including possibly required minimum distributions) from the money in the DCP plan and leaving the rest to grow. YMMV depending on which State employs you. – Dilip Sarwate Sep 11 '14 at 20:41
  • Ah, I see. I'm in Colorado. I'm not actually sure how the payouts from the DCP work, so I will have to look into that. It may be that it is similar to the Illinois system. Thanks again. – Nate Eldredge Sep 11 '14 at 20:44
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    @DilipSarwate does it also affect medicare eligibility? – littleadv May 30 '15 at 19:47
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    @littleadv Medicare eligibility is determined by whether Medicare taxes were paid (for 40 quarters or more, same as for Social Security, or so I believe; I may well be wrong on this). I believe that it was the 1986 Tax Reform Act which required all new employees of State systems (that had opted out of Social Security) to pay Medicare taxes anyway; existing employees were not required to pay Medicare taxes, but could elect to do so to become eligible for Medicare benefits. One can also become eligible for Medicare as the spouse of a person eligible for Medicare; no GPO/WEP. Example, me. – Dilip Sarwate May 30 '15 at 20:06

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