Understanding the ins and outs of Social Security can seem daunting, but it's critical if you want to make the most of the valuable benefits that you'll probably get from the program over the course of your lifetime. There are many different elements that go into determining how much you're entitled to receive or even whether you're eligible to get benefits at all.

Earning Social Security credits is one aspect of Social Security that often gets overlooked, yet it's vitally important for determining Social Security eligibility. If you haven't earned enough Social Security credits over the course of your career, then you might not be able to get the benefits you expect, either when you retire or if you become disabled younger in life. Below, we'll go through the history of how Social Security credits came to be, what's involved in earning them, and how many credits you'll need in order to get benefits.

How Social Security credits got started

The idea of requiring people to work for a set period of time in order to qualify for Social Security benefits goes back to the origins of the program. The 1935 law establishing Social Security set a timeline for monthly benefits to begin in 1942. Under that concept, the period from 1937 to 1942 would help to give time for payroll tax revenues to build up a positive balance in the Social Security trust funds, which were designed to provide a pool of money from which to pay benefits. The delay would also provide a minimum period of participation in the workforce in order to receive benefits.

A 1936 government pamphlet gives some guidelines for how eligibility for Social Security initially worked. According to the pamphlet, workers would be able to receive monthly checks from the federal government beginning at age 65 "if you worked some time (one day or more) in each of any 5 years after 1936, and have earned during that time a total of $2,000 or more."

As the program evolved over its first several decades, Social Security laws gradually changed the way the program determined eligibility. Newer rules governing Social Security called for workers to get a certain number of what were called "quarters of coverage" in order to determine whether they would meet the qualifying standards to receive certain types of benefits. Up until 1978, a wage earner would get a quarter of coverage if they earned $50 or more in wages over the course of a three-month period. Those who were self-employed would receive credit for four quarters of coverage if they reported self-employment earnings of $400 or more in a given year. The number of quarters of coverage was important in figuring out whether someone would qualify to receive certain types of Social Security benefits.

The shift to Social Security credits

Technically, the term "quarters of coverage" still applies to how workers earn credits. However, in 1978, the federal government changed the way that it required employers to report the wages of their employees, going from quarterly reporting to annual. Because the Social Security Administration (SSA) would therefore receive information about worker pay only once each year, switching the way that quarters of coverage were counted was necessary in order to have the system match up with reporting requirements. In addition, inflation had led to rising wages that made the old numbers out of date.

In 1978, therefore, the laws governing Social Security awarded one Social Security credit for every $250 that a person earned in wages. Workers could earn a maximum of four credits per year, which would require earning $1,000 or more during 1978. Because the wage amount could be earned at any time of year rather than spread out across quarters, people started to call them credits rather than quarters of coverage.

The law further provided that after 1978, the $250 credit amount would adjust to reflect changes in average wages as calculated using federal government statistics. For instance, during 1979, it took $260 to earn each Social Security credit, up $10 from the previous year. Over the ensuing 40 years, amounts have risen in all but one year, with increases often coming in between $10 and $50 per credit.

What it takes to earn Social Security credits in 2019

Over more than four decades, the amount of earnings it takes to get a single Social Security credit has increased dramatically from that $250 figure. That increase has gone hand in hand with a rise in wages. Average wages rose from just over $9,200 per year in 1976 to more than $50,000 per year in 2017, and those figures were what the SSA used to come up with the current value of $1,360 per credit for 2019.

What that means in practical terms is that if you earn $1,360 from wages or salary income in 2019, you'll get a single Social Security credit. Workers will get the maximum four credits they can receive in 2019 as long as their total earnings for the year amount to at least $5,440. That's a small number compared to typical earnings, putting maximum credits for Social Security within reach of even those who earn low wages or who work on a part-time basis. 

What kind of income qualifies to earn Social Security credits?

Not all of your income counts for purposes of determining how many Social Security credits you'll get in a given year. Social Security looks only at "earned income" in its calculations. For most people, that includes wages and salaries. Tips are included in the mix as long as those tips get reported to the IRS. Certain benefits, such as vacation pay and severance pay, also go into the credit calculation. 

Self-employment income is treated the same way as earned income is, especially since the self-employment tax paid by those who work for themselves includes both the worker and employer shares of the payroll taxes that go to fund Social Security.

One exception to the rules above applies to those who work for certain state and local government entities. Some of these government bodies elect to maintain their own pension plans as alternatives to Social Security. If they do so -- rather than choosing to participate in Social Security voluntarily -- then participants will typically get their retirement benefits solely from the government-run pension rather than through Social Security.

There are special rules governing what happens when someone works a portion of their career at such an employer and another part at a job covered under Social Security, but that typically affects the amount of the benefit checks that they'll receive rather than their initial eligibility to get any benefits from the program at all.

Another key thing that's not included in credit calculations is "unearned income," which includes income from interest, dividends, royalties, rental payments, and other sources. If you receive a gift or a loan, that won't count, either. A good rule to follow is that if you didn't have to pay Social Security payroll tax on it, it probably won't be considered for purposes of generating credits.

Why does Social Security require different numbers of credits to be eligible for various benefits?

Now that you know what it takes to earn Social Security credits, the next obvious step is to figure out how many credits you need in order to get benefits. The rules are different depending on what kind of benefit you're looking to receive. Specifically, you'll need a different number of credits to receive retirement benefits than you will to get disability benefits, and it could take yet another set of credits to let your family collect survivors benefits after you pass away.

In general, the reason for this has to do with the nature of the benefit in question. Workers work their entire careers before receiving retirement benefits, and so it makes sense to impose a relatively strict set of requirements for a worker to qualify to get those benefits. However, you wouldn't want to force a young worker to work as long a time before being eligible to get benefits if the worker gets disabled, because that could potentially leave a large number of workers unable to collect necessary benefits. Similarly, if the intent of family survivors benefits is to protect the families that rely on a worker, then they might especially need that protection if the worker dies at a young age before having a full earnings history.

Below, we'll look more closely at the Social Security credit requirements for retirement benefits, disability benefits, and survivors benefits.

How many Social Security credits does it take to get retirement benefits?

The rule for retirement benefits and Social Security credits is simple. In order to get retirement benefits under Social Security, you need to have earned 40 credits over the course of your career.

For most people, that means working 10 years. However, if your income is low enough not to get the maximum four Social Security credits per year, then it can take longer for you to accumulate the 40 credits you'll need.

If you don't have 40 credits by the time you want to retire, your choices are limited. You can't borrow or otherwise obtain credits either from another person or from the SSA directly. The best option for some workers is to delay retirement and keep working long enough to get up to 40 credits. If that doesn't work, then your only chance at Social Security benefits will come from any amounts you can claim on the work history of a spouse or parent who earned the required credits.

How many Social Security credits does it take to get disability benefits?

Social Security also pays benefits to disabled people who meet certain guidelines. Typically, you have to be disabled for at least a year and unable to have gainful employment in order to get disability benefits under Social Security. You also need to have a minimum number of Social Security credits -- but figuring out that minimum number is a lot more complicated than it is in the retirement situation.

Specifically, the SSA breaks people down into three main categories:

  • If you're younger than 24 when you become disabled, then the SSA will look at the three years immediately before you became disabled. If you have at least six credits from that three-year period -- half the maximum number of credits you could earn over that time frame -- then you'll qualify to receive disability benefits.
  • If you're between age 24 and age 30, then there's a quick calculation that you'll have to do to determine eligibility. Take the amount of time in years that's passed since your 21st birthday and then multiply it by two. That'll typically tell you how many credits you need. For example, if you just turned 26 and became disabled, then it's five years since you turned 21, and so you'll need 10 Social Security credits to claim disability benefits.
  • If you're 31 or older, then there's a table that you'll need to look at. Depending on your age, you could need as little as 20 credits or as many as 40 in order to receive disability benefits under Social Security.

As with retirement benefits, if you fail to meet the standards for having enough Social Security credits to qualify for disability benefits when you become disabled, then any family members who might have been able to claim family benefits based on your disability will also be out of luck. That includes spouses as well as any minor children you have.

How many Social Security credits does it take to get survivors benefits?

Social Security pays survivors benefits to qualifying family members after your death. Spouses can typically receive survivors benefits once they reach age 60 or if they're caring for minor children, and minor children are usually eligible to receive survivors benefits based on their deceased parent's work history.

Again, though, the deceased worker needs to have earned enough Social Security credits in order to allow their family members to qualify for these survivors benefits. The rules governing Social Security credits and survivors benefits are essentially a hybrid of the rules that cover retirement and disability benefits.

On one hand, if you've earned 40 Social Security credits, then your survivors will always be able to claim benefits. That's the case regardless of when during your career you earned those credits or how long it's been since you worked regularly.

On the other hand, even if you haven't reached the 40-credit threshold at the time of your death, your loved ones can still qualify for survivor benefits under certain circumstances. As long as you had earned at least six Social Security credits looking back over the past three years as of your date of death, then survivors benefits will be available to a spouse or child even without 40 total credits in your career.

Do Social Security credits have anything to do with Medicare?

You might think that Medicare and Social Security have little to do with each other. After all, Medicare takes care of healthcare coverage for older Americans and others, while Social Security simply provides financial support in the form of regular benefit payments.

However, the Medicare program also has eligibility requirements and in one case, it looks to the Social Security credit system in order to determine how part of its own healthcare program will work.

The issue with Medicare and Social Security credits involves Part A coverage for hospital and inpatient medical costs. For most Medicare participants, Part A coverage comes without any monthly premium. The idea is that the Medicare payroll taxes that most workers pay over the course of their careers go toward covering the cost of their hospital coverage when they retire, and so charging an additional premium isn't necessary.

However, it takes time for the payroll taxes that get collected from your paycheck to add up to enough to be a meaningful figure. That's why the program requires a minimum work history to let you avoid paying monthly premiums for Part A coverage.

Specifically, if you've earned 40 or more Social Security credits, then you won't have to worry about monthly premiums for Part A coverage. Medicare will pick up all the costs itself, leaving you just to pay any deductibles, copayments, and coinsurance amounts on your own.

Even if you haven't earned 40 Social Security credits, you can still get Medicare Part A coverage, however, you'll have to pay regular monthly premiums. If you've gathered between 30 and 39 Social Security credits, then you'll need to pay $240 per month in order to cover your healthcare costs. If you have fewer than 30 credits in your career, then the monthly amount jumps up to $437. That figure rises year after year for inflation, potentially making it even more costly.

A checklist for maximizing Social Security benefits

If you want to make sure you're getting as much from Social Security as you can, then it pays to keep the following things in mind when it comes to Social Security credits:

  • Early on in young adulthood, try to get a job that will pay you at least enough to get six Social Security credits as quickly as possible. That'll take an average of just $4,080 per year over a two-year period. Doing so will make you eligible for Social Security disability benefits if something were to happen to you that kept you from being able to work.
  • As you grow older, you'll typically need two Social Security credits per year on average in order to keep pace with the rising requirements for disability benefit coverage. That's just $2,720 per year in earnings in 2019, which most people can earn even through low-paying jobs or side gigs.
  • If you have family members who are counting on being able to get survivors benefits through Social Security when you pass away, then getting to six credits quickly and then earning at least two credits per year is also a sound strategy. That'll be enough to ensure eligibility long before you've accumulated the total of 40 credits.
  • If you're just shy of reaching 40 credits as you approach retirement, think about continuing to work until you're over the threshold. The lifetime Social Security retirement benefits you'll receive as a result could add up to tens or even hundreds of thousands of dollars. In addition, being able to avoid the Medicare premiums that those with fewer than 40 credits have to pay provides an additional incentive.

Finally, it's important to make sure that Social Security has an accurate set of earnings records for you in their files. If you've worked enough to qualify for benefits but the SSA has the wrong information, then your request for Social Security could get denied. You can check the numbers the SSA has by looking at your Social Security statement, and if you need to correct mistakes, then contacting the SSA directly is the best way to replace bad information with good.

Be smart about Social Security credits

The concept of Social Security credits can seem unnecessarily complicated. But the payoff from taking the time to understand what Social Security credits are and how you can get them is huge. Take steps today to make sure that you have all the Social Security credits you'll need to live the retirement lifestyle you've always dreamed of having.

This article originally appeared in the Motley Fool. The Motley Fool has a disclosure policy.