Sense with Cents

by Dennis Pearson

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The Case for Getting Your Family to 40 Quarters

April 20, 2026 · 2026 figures throughout; updated annually

The short version

  • Hit four Social Security credits every year for every family member you want covered. In 2026 that’s $7,560 in covered earnings.
  • Don’t minimize your own W-2 if you have a spouse who hasn’t earned 40 credits, a disabled child, or other family whose future depends on your record.
  • Filing at 62 is often the right move for families with a disabled adult child — it starts the DAC Medicare clock regardless of cash payment.
  • Credits earned early are worth more than credits earned late; the benefit formula’s indexing favors young workers substantially.
  • For modeling your specific case, Maximize My Social Security is the tool that handles these scenarios.

Which section fits you? Business owner → next section. Young reader just starting out → skip to “Time is the other factor” and “I learned this one the hard way.” Parent of a child with a disability → jump to “When a disabled child becomes a disabled adult.” Approaching 62 → “Claiming at 62 and still working.” Spouse behind on credits → “When one spouse has earned less.” Reading the whole thing is fine too — it’s built to be a one-stop source.

Much of tax planning around Social Security is about paying less in. That advice isn’t wrong — it’s optimized for a default household: single earner, no dependents with lifelong needs, normal retirement arc. For that household, the math supports it. Most real households aren’t that. If you have a non-working or low-earning spouse, a child with a lifelong disability, a second spouse on their way to 40 credits, or a household where one parent carries the earnings record that everyone else will eventually claim against, the conventional advice gets expensive fast. Getting every eligible family member to 40 credits — and not shorting your own record along the way — can be worth six or seven figures over a lifetime. Nobody tells you this, because the default advice is optimized for the default household, and your household might not be that.

This post is about the other direction. After 45-plus years in payroll and accounting, and a lot of conversations over the decades with other business owners and families about what this program actually does for their households, I’ve come around to a simple view: get the people you love to 40 credits as fast as you reasonably can, and at the very minimum hit the four-credit threshold every year. Don’t short your own record either. The downside of not getting there could be much worse than the tax.

A note on where this comes from. 45-plus years in payroll and accounting — building software that has to get the rules right, and sitting across from tens of thousands of small business owners and their families through the questions that come up when real life meets the tax code. That’s the angle. I’m not a Social Security lawyer or a licensed financial planner, and nothing here is legal or financial advice. It’s what the rules actually say, read carefully, through the lens of what I’ve seen work and not work for real households. I haven’t seen this framing published anywhere else. If you’ve seen similar analysis, I’d genuinely like the reference. In the meantime, if you’re making real decisions about any of this, the one software tool I’ve found that can actually model the scenarios described here is Maximize My Social Security, built by Laurence Kotlikoff, a Boston University economics professor who has spent much of his career on Social Security policy. I’m a paying customer of the tool myself — no affiliate relationship, no referral fee, no compensation of any kind for mentioning it here. Just a user who found it worth the money.

One thing to get out of the way up front: Medlin Software sells payroll software. Anyone can reasonably ask whether an argument for running more covered wages is shaped by that fact. It isn’t. The post argues for more W-2 reporting when the household actually benefits from it, and against it when the household doesn’t — including the explicit case where minimizing FICA is the right move for a default household. What’s in this post comes from decades of watching the same patterns play out in real families, not from a marketing angle. I’d write the same post if I sold something else entirely.

Forty credits is the magic number. In 2026, one credit is $1,890 in covered earnings. Four credits max per year at $7,560. Forty credits total, which works out to ten years of covered work. Hit that and the worker is insured for retirement benefits and, at 65, Medicare Part A with no premium. Miss it and the answer is zero. Not reduced. Zero.

A quick note on the word “quarter,” since everyone calls these quarter credits. They used to be tied to calendar quarters, but haven’t been since 1978. Today credits are based on your total covered earnings for the year, not when during the year you earned them. You can earn all four credits with one paycheck in January and nothing the rest of the year, or spread them across twelve months — same result. What matters is hitting $7,560 in covered earnings sometime during the year.

Business owners have options W-2 workers don’t

A salaried employee’s Social Security record is on autopilot. Whatever the employer reports is what goes on the ledger. End of story.

An owner of a closely-held business has knobs to turn. Most accountants turn those knobs toward “minimize FICA.” That’s fine as a default, but it isn’t the only move, and it isn’t always the right one. The same knobs can be turned the other direction — to deliberately build up covered earnings for the people in the family who need the record.

How much flexibility you have depends on how the business is structured.

S-corporation owners have the most room to work. An S-corp owner’s W-2 salary is subject to Social Security tax; distributions are not. The IRS expects “reasonable compensation” for services performed before distributions are paid, and will reclassify distributions as wages if the salary is too low. That’s the practical floor — but there’s no ceiling short of what you can defend. In the years you’re building your record, running W-2 wages up to the Social Security wage base ($184,500 in 2026) maxes out your covered earnings for the year. Anything above the wage base isn’t subject to the 6.2% Social Security tax anyway, so paying at the cap costs you nothing extra in FICA compared to paying just above “reasonable.” You get the biggest possible credit for the year at no additional Social Security tax cost.

Once you’ve hit 40 credits and you’re comfortable with where your top 35 years sit, you can flip the lever. Drop the W-2 to a genuinely defensible reasonable compensation for the actual work you do, and take the rest as distributions. That’s where the real tax savings live. The insurance is already paid for. (If you’re an S-corp owner paying shareholder health insurance premiums, that also affects your W-2 reporting — see S-Corp Shareholder Health Insurance for how that piece works.)

This isn’t hypothetical. RCReports, a firm that specializes in reasonable-compensation analysis for S-corp owners, has documented cases of owners who followed minimum-salary advice for decades and discovered, on reaching retirement, that their Social Security benefit was a fraction of what a defensible market-rate salary would have produced. The short-term payroll tax savings came out of their retirement, dollar for dollar plus some, and they didn’t see it coming until the statement arrived.

The same lever works for getting a spouse to 40 credits in a hurry. If the spouse does real work for the business, put them on W-2 at a level that earns the full four credits per year ($7,560 in 2026, or more). Ten years and they’re fully insured on their own record. For kids who do real work in the business, the same logic applies — and “real work” starts younger than most people assume. A teenager who updates the business website, helps less-tech-comfortable parents set up software or troubleshoot computer problems, posts to social media accounts, photographs inventory, packages and ships orders, cleans and maintains equipment, enters receipts or bills into the accounting system, or handles any other legitimate task at a defensible wage is earning wages the same as any other employee. Covered W-2 wages build their disability safety net at an age when they don’t think they need one. The paperwork matters, though: timesheets, a written job description, and wages proportional to the actual work are what keep a legitimate teen wage from looking like a tax maneuver if anyone asks.

When the business can’t afford to max out both spouses. This is the realistic case for most family S-corps. If there isn’t enough profit to run both parents up to the Social Security wage base, pay the primary earner as high as the business can support — and pay the other parent at least the $7,560 per year to earn all four credits. Don’t skip a year on the non-primary earner just because the budget is tight. A year without four credits is a year their record fell behind the ten-year finish line. Credits earned now are worth more than credits earned later (more on that below), so getting even four credits on the board in a lean year beats waiting for a year you can afford to max out both.

Sole proprietors and single-member LLCs have less flexibility. Net profit from a Schedule C is self-employment income, and self-employment tax covers the full Social Security piece (12.4%) up to the wage base. You don’t get to split between “salary” and “distributions.” Whatever the business made, you pay SE tax on — which means your covered earnings build automatically as long as the business is profitable. The trade-off: no lever to dial it down later. You’re paying full freight on Social Security for as long as the Schedule C is active.

A sole proprietor (or a partnership where both partners are the parents) is required to pay their under-18 child wages without Social Security or Medicare tax. This isn’t a planning choice — it’s a statutory rule. If the business structure qualifies, the exemption applies whether you want it to or not. You can’t just decide to pay the FICA anyway to build the kid’s record. The same mandatory-exemption principle applies to certain wages paid to a spouse and, in narrower cases, to a parent. The only way to get those wages on a Social Security earnings record is to change the underlying structure so the exemption no longer applies — or to have that family member earn covered wages from a different source.

Partnerships split the difference. General partners pay SE tax on their distributive share of partnership income, same mechanism as a sole prop — no flexibility to split into salary and distributions. Limited partners generally don’t pay SE tax on passive shares. Spouses who work in the partnership can be treated as employees or as partners themselves, and the choice affects whether they build covered earnings. Worth sitting down with your accountant, because the default often isn’t the best answer for the spouse’s record.

LLCs taxed as partnerships behave like partnerships. LLCs electing S-corp treatment get the S-corp flexibility described above. The entity type that shows up on the tax return is what matters, not the state-law form.

Sometimes the right move is changing the structure itself. If your current setup makes it hard or impossible to get a spouse or kid onto a Social Security earnings record — a sole proprietorship where the under-18 kid-wage exemption is mandatory, or a family business where a working spouse is a passive owner instead of an employee — one answer is to look at the structure. Converting to an S-corp opens up W-2 wages as a mechanism and removes some of the mandatory family exemptions. Treating a spouse as a working partner with SE-taxed distributive income gets them on the record. Bringing a non-parent owner into a partnership can change which family-employment exemptions apply. The entity type isn’t just a tax-optimization question. It’s also about whether the business can build the records you need it to build. If you own the business, you’re deciding — through the structure itself — how much of your family’s income becomes covered earnings and when.

Time is the other factor

If the business-structure section above was theoretical for you right now, start here — this part applies whether you own a business or not.

The benefit formula doesn’t treat all covered earnings equally. A dollar of covered wages at 25 is worth more than a dollar of covered wages at 60. That sounds backwards — most financial math runs the other way — but the Social Security formula is built on its own logic.

The practical version: credits earned early have decades to do their job. They fill in the 35-year average, they keep you insured for disability along the way, and they sit at the top of the calculation for longer. Waiting until your fifties to start building a spouse’s record, or a kid’s, means racing the clock and getting less value for the same dollars paid in.

The technical version, for anyone who wants to know why: when Social Security computes your benefit, it indexes your historical earnings up to wage levels at age 60 using the National Average Wage Index. Earnings in your 20s and 30s get multiplied by a substantial factor — often 3x or more — because wages have grown a lot since then. Earnings after age 60 don’t get indexed at all; they’re used at face value. So a year of near-max covered earnings at 28 may show up in your top-35 calculation as a much larger indexed number than the same nominal dollars earned at 62.

This is why “start early” isn’t just motivational advice. The math is actually on the side of early credits.

For a spouse whose record is behind on credits, this means don’t wait until the business is flush to start paying them W-2. For kids working in the family business, this means covered wages at 16 count for more than covered wages at 26 — if the business structure allows for covered wages at all. And for an owner deciding whether to max out their own W-2 in their thirties or dial back early — the thirties are where the multiplier lives.

There’s also a quiet benefit to watching your record over time: Social Security automatically recomputes your benefit each year based on your latest earnings. If a new year’s earnings beat a lower year in your top-35, it replaces that lower year and bumps your future benefit. You don’t apply for it. It just happens. The same mechanism makes a late-career surge of covered earnings meaningful even if you’re already eligible.

I learned this one the hard way

I’m writing this as someone now nearing his own full retirement age, with a few zero years on his earnings record he’d love to have back.

In my younger days, I worked for a family-owned business before I was 18, in a setup where nothing was paid into Social Security on my behalf. Legal and normal at the time. It just meant those years went on my lifetime record as zeros. Dollars I thought I didn’t need to think about.

Here’s the part I didn’t see coming. A future with a spouse and kids who were dependent on just my income, and my own potential inability to work. I had more than one dangerous hobby — the kind of thing that lands people in the ER, and occasionally worse. If something had gone wrong in my twenties, I would have been in no position to qualify for SSDI on my own record, because I barely had a record. I didn’t think about it. Few at that age do.

I got through it fine. A lot of people don’t. And decades later, those zero years are gone but not forgotten. They still sit on my statement, quietly dragging down the 35-year average that determines not just my benefit, but the benefit of every family member whose future depends on my Social Security record. The part that nags most: if I’d had covered earnings during those years, the indexing formula would have multiplied them up to current wage levels — potentially landing higher in my top-35 than some of the qualifying years I do have. Those weren’t just missing dollars. They were the most valuable dollars, dressed up as “I don’t have to worry about this yet.”

I pay attention now when anyone tells me about their family business setup — the sole prop where the kid’s wages are exempt by law, the spouse who’s on the books in a way that skips FICA, the S-corp running everyone at minimum W-2. None of that is illegal. Some of it isn’t even a choice the owner made deliberately — it’s just the default of the structure they’re in. But the consequence is the same: empty records where they don’t need to be. I’ve seen what those zeros look like forty years on. I’m looking at mine.

But it’s also never too late

The other side of “early credits are worth more” is a trap people fall into: deciding the battle is lost because a spouse or late-career worker is starting in their 60s. Not true. The indexing math favors youth, but the basic math of getting insured at all runs on a simple ten-year count.

A spouse who starts building covered earnings at 62 can be fully insured by 72. That unlocks their own Medicare Part A without premiums, their own retirement benefit (often larger than the spousal benefit, depending on the numbers), and — if there’s a disabled adult child in the family — eligibility for the child to collect DAC on their record too. None of that existed the day before the 40th credit landed.

If the spouse can’t work for the family business, a part-time W-2 job elsewhere does the same thing. So does legitimate self-employment with SE tax paid. The record doesn’t care where the covered earnings came from, only that they got reported.

The families I’ve seen write off this option almost always realize later it was in reach the whole time — they just needed to start when the question first came up.

One piece of recent news makes the “never too late” case stronger than it used to be. In early 2025, Congress repealed the Windfall Elimination Provision and the Government Pension Offset through the Social Security Fairness Act. For decades, those rules cut or eliminated Social Security benefits for workers who also had pensions from non-covered employment — teachers, firefighters, some state and local government workers, certain federal retirees. If your spouse or a family member falls into that category, their Social Security record is now worth substantially more than it was 18 months ago, and their spousal or survivor rights on your record are no longer subject to GPO reduction. Worth a fresh look at their statement.

Even the minimum pays off more than people expect

There’s a quirk in the benefit formula worth knowing about. Social Security doesn’t pay a flat percentage of your average earnings. It’s weighted heavily toward the bottom end — the first slice of your lifetime average earnings gets credited at a much higher rate than the next slice, which gets credited at a much higher rate than the slice above that. The formula is designed to replace a larger share of income for lower earners.

What this means in practice: the first several thousand dollars of average indexed earnings produce a disproportionate chunk of your eventual monthly benefit. Someone who worked ten years at roughly the minimum needed for four credits per year still ends up with a meaningful retirement check, because those dollars land in the most generous part of the formula. The second and third decades of earnings add to the benefit too, but not as dramatically.

The takeaway for family planning: in most household configurations, getting the spouse with the smaller earnings record from zero credits to 40 credits at modest covered earnings produces more benefit per FICA dollar than marginally improving a record that’s already deep. That’s especially true when the primary earner’s top-35 is mostly filled with years at or near the wage base. If the primary earner has many lower-earning years in their top-35, continued high earnings there still matter — each new high year replaces an older lower year through the annual recomputation. The rule of thumb holds, but the exception is worth naming.

“But I could invest the FICA savings privately”

This argument comes up often, and it has holes.

The first hole is discipline. Most people won’t actually save the delta. The ones who do won’t keep their hands off it for 40 years. That’s not a slight on anyone — it’s just what the data on retirement savings shows.

The second hole is what a real Social Security record gets you that a brokerage account doesn’t. Lifetime indexed payments. Spousal benefit multiplication. Survivor continuation. DAC coverage for a disabled adult child. COLA adjustments. Built-in disability insurance along the way. Medicare eligibility at 65 without premiums. Reproducing all of that privately, starting from scratch, takes a lot more than the payroll tax you saved.

The third hole is market risk. The “just invest the difference” argument usually assumes steady returns and a calm investor. Real life looks more like 2000, 2008, 2020, 2022 — significant drawdowns that hit at the worst possible moments, combined with the temptation to sell low and buy back in after the rebound. Social Security doesn’t care what the S&P did the year you retire. Your benefit doesn’t drop 30 or 40 percent because there was a pandemic, a financial crisis, or a bear market. The COLA keeps pace with inflation. Over a 30-year retirement that might include two or three serious downturns, a guaranteed inflation-adjusted income stream is worth more than a spreadsheet projection based on a clean 7% average return.

If you want this to stop being abstract, gently ask a retired friend or family member what 2008 did to them. Plenty of people who retired in 2006 or 2007 watched half their portfolio disappear in eighteen months — and the ones who held on still lost years of drawdown room while they waited for the market to come back. People who lived through it and came out the other side are usually willing to talk about it. You’ll learn more from one honest conversation like that than from any projection built on a clean 7% average return.

The fourth hole is the political risk argument itself. People sometimes minimize their Social Security participation because they’re convinced the program will be cut or gone before they collect. It’s a real concern worth taking seriously, but the historical pattern when Congress has faced Social Security shortfalls — most notably the 1983 amendments, which raised the retirement age and adjusted taxation of benefits — is that changes get phased in for younger cohorts rather than cut for people already at or near retirement. A benefit cut on current or near-term retirees would be politically radioactive. That doesn’t make the program invincible. It does mean betting against it, in the form of aggressively opting out now, is a bigger wager than people usually realize.

Put those together: two decades of fully insured status, with COLA, survivor, spousal, disability, and Medicare protections built in, is hard to replicate with a taxable brokerage account holding the FICA savings — especially through a couple of bad market cycles.

A fair counterweight worth naming: for a disciplined high earner with a long time horizon, a diversified portfolio, and no dependents in the picture, the internal rate of return on marginal Social Security contributions can genuinely trail what the same dollars would earn invested privately. That’s been well-documented, and it’s not wrong. The case in this post rests mostly on Social Security’s insurance features — DAC coverage for a disabled adult child, survivor continuation for a spouse, disability coverage during working years, Medicare without premiums — not on marginal retirement-benefit IRR. If those insurance features don’t apply to your household, the IRR argument for private investing is legitimate. If they do apply, the comparison isn’t return-on-return; it’s return-plus-insurance versus return-alone, and insurance is the part you can’t buy back later.

When one spouse has earned less

If one of the parents is the primary earner and the other has earned substantially less, this section is for you. Otherwise, skip to “The kids.”

When one spouse has earned a lot and the other hasn’t, the standard plan is that the lower earner takes a spousal benefit — up to 50% of the higher earner’s benefit at full retirement age. That sounds fine until you look at it carefully.

Getting that spouse to 40 credits on their own record does several things the spousal benefit doesn’t.

It can produce a bigger monthly check. Once the spouse is fully insured, Social Security pays whichever is higher — their own benefit or the spousal amount. If their own record beats half of yours, they keep the bigger number.

It gets them their own Medicare at 65 without waiting on you. A spouse without 40 credits can still get Medicare through your record, but only once you qualify. If you’re younger, that’s a problem. If you die before qualifying, that’s a bigger problem.

It gives your minor children two records to claim from if something goes wrong. Children of a disabled or deceased worker can collect benefits on that parent’s record. If both parents are insured, the family has two safety nets instead of one. For families this has actually mattered to, it mattered more than anything else on the tax return.

And there’s the other direction of spouse protection that most people don’t think about until too late: survivor benefits. When one spouse dies, the surviving spouse can step up to 100% of the deceased spouse’s benefit if it’s larger than their own — which is the usual case when one spouse was the higher earner. That’s the single strongest reason to max the higher earner’s record, not minimize it. The surviving spouse is going to live on that benefit, often for a long time. Every dollar of covered earnings the higher earner reported during their working years is a dollar that shows up in their survivor’s monthly check for the rest of that survivor’s life.

One limit to know about: the family maximum. Social Security caps total benefits paid on one earnings record — spouse, minor children, and disabled adult child combined — at roughly 150 to 180 percent of the worker’s Primary Insurance Amount. It’s called the Family Maximum Benefit. The worker’s own benefit is paid in full; it’s the auxiliary benefits that get prorated down if the total would otherwise exceed the cap. This doesn’t erase the case for building the record — a bigger PIA means a bigger cap and bigger proportional shares — but it’s the reason getting the spouse with the smaller earnings record onto their own 40 credits matters even more when there are multiple auxiliaries in the picture. A spouse drawing their own 40-credit benefit off their own record isn’t subject to the family max on your record. Two records, two family maximums.

So if your spouse has a part-time gig, a side business, or the option of picking up W-2 work for a few years, the numbers often say do it — even when the payroll tax hit looks ugly on paper. You’re buying something real.

The kids

This is the part almost nobody plans for.

Everyone thinks about retirement. Nobody thinks about their nineteen-year-old crashing a dirt bike, a snowboard, or a motorcycle. Or the kid who gets a serious diagnosis at twenty-two. Young adults have accidents and illnesses. That’s not pessimism, that’s actuarial tables. Speaking as someone who was that kid at a racetrack in a different decade — I know.

Social Security Disability has its own credit rules for young people, and they’re actually generous — but only if the young person has been earning covered wages.

  • Before age 24: six credits in the three years before disability starts.
  • Age 24 to 31: credit for working roughly half the time between age 21 and when the disability begins.
  • Age 31 and up: the standard 20 credits in the last 10 years.

A young person with a real job, getting real W-2 paychecks with FICA withheld, is quietly building a safety net nobody talks about at the dinner table. A child or teenager who works at a business structured so that their wages are legally exempt from Social Security tax — like a parent’s sole proprietorship — is building nothing, regardless of how many hours they put in or how young they started. The exemption is mandatory when it applies. The empty earnings record on the other end of it is the consequence.

If your business structure forces the kid exemption on you, that’s worth noticing

Many family businesses don’t realize they’re sitting inside a mandatory Social Security exemption. A sole proprietor paying their own under-18 child, or a partnership where both partners are the parents paying their child — federal law doesn’t let those wages be covered by Social Security. You don’t get to opt in. If your business runs that way through the kid’s entire high school and college years, the kid can come out the other side at 22 with essentially no earnings record, even though they worked for you the whole time.

That’s not anybody doing anything wrong. It’s the default for that structure.

The question becomes: is the default serving your kid? If that kid gets hurt at 23, they may not qualify for SSDI at all. They saved the family a few hundred dollars a year in payroll tax. They also quietly inherited no disability coverage at an age when one bad accident or diagnosis can define the rest of their life.

There are two real paths out. One: have the kid earn covered wages somewhere else — a part-time job at a neighbor’s business, their own side gig treated as legitimate self-employment, a W-2 job at a company that isn’t structured as parental sole-prop or parent-parent partnership. Those wages build their record normally. Two: change your own business structure. An S-corp paying the kid a W-2 doesn’t get the exemption. Neither does a partnership where a non-parent has an ownership stake. If you genuinely want to get your kid onto a real earnings record and they’re working for your business, the structure of the business is the lever. The payroll isn’t.

The parents this catches weren’t trying to hurt anyone. They did what their accountant told them to do, and nobody sat them down and explained that the structure itself was the decision being made. It’s worth making on purpose.

When a disabled child becomes a disabled adult — your record matters most

Skip this section if it doesn’t apply to your family — the next major section on claiming at 62 stands on its own.

If a child’s disability starts before age 22, the rules change in a way most families don’t know about until they need to know.

That adult child can collect Social Security benefits off a parent’s earnings record once the parent retires, becomes disabled, or passes away — provided the parent is fully insured. This is called the Disabled Adult Child, or DAC, benefit. The adult child does not need their own work history to qualify. The parent’s 40 credits is what opens the door.

Without DAC, a disabled adult with no earnings record falls back on Supplemental Security Income, which is means-tested and comes with a $2,000 individual asset limit. That limit is what drives a huge industry of special needs trust planning — families spend real money on legal structures specifically to hold assets for a disabled adult child without kicking them off SSI. An inheritance, a life insurance payout, even a car in the wrong name can disqualify them. SSI asset rules shape a family’s entire estate plan.

DAC benefits under SSDI have no asset limit. None. The disabled adult child can hold savings, inherit directly from parents or grandparents, be named beneficiary on a life insurance policy, own a car, keep a brokerage account — and their monthly benefit doesn’t budge. The parent’s earnings record bought that freedom for them.

One important exception worth knowing: DAC benefits generally terminate if the disabled adult child marries, unless their spouse is also a DAC or another Social Security beneficiary in a qualifying category (POMS RS 00203.035). This is a real-world limit on long-term DAC planning that families don’t always hear about until it becomes relevant. It doesn’t change the case for building the record — DAC is still the most valuable path for the large majority of disabled adult children — but it’s a rule to understand before making long-term assumptions. A DAC considering a serious relationship has more structural options than most people realize, but the rules are state-specific and the workarounds that work in some states don’t work in others — worth a conversation with a disability rights organization or benefits-knowledgeable attorney before planning around any particular arrangement.

Beyond assets, DAC often pays more per month than SSI — how much more depends on the parent’s record. DAC is 50% of the parent’s Primary Insurance Amount while the parent is alive, 75% after the parent’s death, subject to the family maximum if other auxiliaries are also drawing. A thin parental record can produce a DAC benefit close to or even below the SSI federal benefit rate — and that’s not a small distinction. If the DAC benefit amount lands below SSI, SSI fills the gap and the adult child stays on SSI for life, which means the $2,000 asset limit continues to apply for life too. The whole “DAC has no asset limit” advantage described earlier is conditional on the parent’s record being strong enough to push the DAC benefit above SSI. A strong parental record doesn’t just produce a bigger check — it unlocks a different financial reality, one where the adult child can hold savings, inherit normally, and build a life that doesn’t have to be structured around SSI’s means test. A thin record keeps them in that world forever. DAC also comes with Medicare eligibility 24 months after benefits begin (regardless of age), and in California also unlocks full-scope no-cost Medi-Cal under the DAC Medi-Cal Program.

On the state Medicaid piece: California’s DAC Medi-Cal Program is specific to California. Other states handle the DAC/Medicaid interaction differently. Some run similar “pickle amendment” or 1634-state programs that preserve Medicaid when the move to DAC would otherwise cause a loss of eligibility. Others don’t, and in some cases a DAC entitlement can actually complicate Medicaid coverage for the disabled adult child rather than preserving it. The general case for DAC — monthly income, Medicare eligibility, no asset limit — holds in every state. The Medicaid piece specifically needs a state-by-state check. Worth asking a state-specific benefits counselor or disability rights organization before assuming your state matches the California example.

One principle worth knowing, especially because medical coverage is often the first thing a DAC needs to protect: benefits counselors have long advised that keeping even a small active benefit — a dollar of SSI, or filing for Social Security to trigger DAC entitlement — can matter more than the dollar amount suggests, because active status is what keeps associated medical coverage pathways open. Families who’ve navigated this at ground level, especially those who did it before the Affordable Care Act when preexisting conditions could close off private insurance entirely, learned to treat any active medical coverage pathway — however small — as worth protecting. The rules have changed since then. The instinct hasn’t. Per POMS HI 00801.146, filing alone puts the DAC’s Medicare waiting period in motion regardless of whether cash is actually paid. On the SSI side, specific rules (Section 1619(b), the Pickle Amendment, 1634-state rules) exist precisely to preserve Medicaid when SSI cash drops out for particular reasons. The mechanics vary, but the principle is real: maintaining benefit status, even at a nominal level, is often what protects the medical coverage underneath it. A qualified benefits counselor can walk through the specifics for your state and situation.

That’s the part to absorb: a disabled child grows up to be a disabled adult, and that adult may live on your Social Security record for the rest of their life. Every year you reported low or zero covered earnings is a year you made that future smaller. The parent who aggressively minimized their own FICA through a minimum-salary S-corp approach for thirty years isn’t just shorting their own retirement. They’re shorting a child who will have no other way to replace it — and forcing the family into a lifetime of working around SSI’s asset limits instead of just letting the kid have a normal financial life on their own terms.

Claiming at 62 and still working is a real strategy — not a penalty

Most of the advice out there treats claiming before Full Retirement Age as a mistake to avoid. That framing misses a common and often profitable scenario: filing as early as 62 while continuing to work. For certain families, especially those with a disabled adult child, it can be the highest-value move available.

Here’s the mechanism in plain language.

At 62, you can file for retirement benefits even if you’re still working. Your benefit is permanently reduced for filing before FRA — up to 30% depending on how early — but the reduction isn’t the whole story. If your earnings while working exceed a threshold, Social Security temporarily withholds some of your benefits. In 2026, if you’ll be under FRA all year, the earnings test threshold is $24,480. For every $2 you earn above that, $1 gets withheld. In the year you reach FRA, the threshold jumps to $65,160 and the ratio becomes $1 withheld for every $3 earned, applied only to earnings before the month you hit FRA. Starting the month you reach FRA, the test disappears entirely — you can earn any amount with no withholding. How this plays out for any specific person depends on earnings level, birthday timing within the calendar year, and how long you continue working — another place where modeling the scenario in Maximize My Social Security beats rule-of-thumb guidance.

The part most people don’t know: the withheld benefits are not lost. When you reach FRA, Social Security recomputes your monthly benefit upward to credit back the months that were withheld. Your check goes up permanently. Over the rest of your retirement, you get the withheld money back — just spread across later years instead of paid during working years.

For a technical reader: the mechanism is called the Adjustment of the Reduction Factor, or ARF (POMS RS 00615.480). The early-filing reduction you took at 62 gets partially undone at FRA by the number of months benefits were actually withheld, because those months don’t count as “benefits received early.” On top of that, any high-earning year while you’re still working can replace a lower year in your top-35 through the annual recomputation.

There’s also a lesser-known first-year rule that’s more than a footnote. In the first calendar year you receive benefits, Social Security can apply a monthly earnings test instead of the annual one. In 2026, the monthly limit is $2,040 if you’re under FRA all year. Stay under that number in a given month and you receive your full benefit for that month, regardless of how much you earned earlier in the year.

What this means in practice: someone who leaves a high-paying job mid-year, or who files in January and reduces their earned income as the year goes on, can earn a significant amount during part of the year and still collect full benefits for the months where earned income stays under the monthly threshold. For a family-level strategy, this is meaningful — you’re not just optimizing over a single calendar year, you’re choosing specific months to receive full checks.

For an S-corp owner, this is where reasonable compensation timing becomes a live question. Earned income (W-2 wages and SE income) counts against the monthly test. Distributions don’t. So in the months after filing, a business owner can structure their W-2 to stay under the monthly threshold while continuing distributions as normal, preserving full benefit checks for those months. That’s a planning lever a regular W-2 employee doesn’t have — and one worth thinking through carefully with a tax professional, because “reasonable compensation” is an IRS concept with its own rules. You can’t suddenly zero out your W-2 just because you’d like those Social Security checks. But within a defensible range, timing matters.

Now add the family angle. When you file at 62, anyone eligible for auxiliary benefits on your record — spouse in certain circumstances, minor children, and crucially a disabled adult child — becomes entitled to begin collecting. For the DAC, that also starts the 24-month Medicare waiting period running. Every month you delay filing is a month the DAC isn’t moving toward Medicare.

One nuance worth being straight about: if your earnings over the threshold cause your own benefit to be withheld, the withholding is prorated across all auxiliary benefits on your record, DAC included (POMS RS 02501.095). Cash flow in those high-earning years can be reduced or interrupted. But the Medicare clock itself keeps ticking. SSA’s Program Operations Manual System (POMS HI 00801.146.B) is explicit on this point: “Even though a cash benefit may not be payable for a particular month, all months of disability benefit entitlement are counted in determining when the 24 month D-HI qualifying period requirement is met.” The example POMS gives makes this concrete — a beneficiary whose last monthly check was received in the 20th month of entitlement (because work activity caused benefits to stop) still gets Medicare in the 25th month of entitlement. For DAC families filing at 62, that matters: withheld or suspended months count toward Medicare just as paid months do. The filing itself is what starts the clock.

Extra flexibility when the parents are different ages. If there’s a meaningful age gap between the parents and both of them are fully insured, the older parent can file at 62 — triggering DAC entitlement and starting the Medicare clock — while the younger spouse keeps working and delays claiming. That delayed claim earns 8% per year in delayed retirement credits from FRA up to age 70. When the younger spouse eventually files, if their benefit is larger than the older spouse’s reduced benefit, the DAC may be able to switch to the higher record. The survivor picture also changes depending on who passes first. More insured records means more options at every junction — but none of that flexibility exists if one of the parents never got to 40 credits. Getting the non-primary earner across that ten-year line isn’t just about their own eventual benefit. It’s what unlocks the real family-level planning.

And then there’s longevity. A 62-year-old man today has a life expectancy around 20 more years. A 62-year-old woman, about 23. These are conditional life expectancies — someone who has already reached 62 has an expected lifespan meaningfully longer than the birth-year life expectancy tables that get quoted in most retirement planning. Family history of longevity pushes it further still. Claiming at 62 instead of 70 gives up about 8 years of potentially higher monthly checks in exchange for 8 extra years of receiving anything at all. The conventional wisdom says wait — and for a single person with no dependents and a long expected lifespan, maybe. For a couple where the younger spouse can delay while the older files at 62, or any family with a DAC on the record, the math often tilts hard the other direction. Filing early can mean more lifetime dollars to the family, faster Medicare for the DAC, and continued earnings feeding a benefit that’ll be recomputed upward when the work eventually stops.

A quick reality check at the kitchen table

Pull up ssa.gov and open a my Social Security account for everyone in the house old enough to have one. Look at the actual earnings record. You’ll see every year of covered wages for each person, and the credits earned.

Then ask seven questions:

  • Does my current business structure actually let me build Social Security records for the people I want covered — or does the way it’s set up quietly prevent it?
  • Does my spouse have a path to 40 credits? If not, what would it take?
  • Do my working-age kids have any credits at all? Are they on track?
  • If my spouse or I got hurt tomorrow, is the family covered by both records or just one?
  • If one of my kids got hurt at 20, would they qualify for SSDI on their own?
  • If one of my kids has a disability that will follow them into adulthood, is my own record strong enough to carry them through DAC?
  • If someone in the house is approaching 62, have we modeled early filing against the DAC Medicare clock and lifetime family benefits — not just individual benefit maximization?

If you want to actually model the numbers for your specific situation — claiming ages, spousal timing, DAC scenarios, survivor math, the interaction between filing at 62 and continued work — Maximize My Social Security is the tool that handles the cases this post describes. As noted up top, I’m a paying customer, not an affiliate — I use it myself to model the kinds of scenarios this post describes.

None of this means paying maximum Social Security tax on everything forever. For a default household — single earner, no dependents with lifelong needs, a normal retirement arc — minimizing FICA might be exactly right. But most households aren’t that. The question worth asking isn’t “how do I pay less Social Security tax” — it’s “whose future is tied to my earnings record, and am I building what they’ll need?”

Get them to forty. And don’t shortchange your own record either.

The same pattern shows up at the state level in places you wouldn’t expect. For one example of how a state-level benefit calculation can quietly exclude a chunk of a worker’s income — and cost them real money when they need the benefit — see If You Earn Tips in Washington State, How Much Paid Leave Benefit Are You Actually Earning?. Different program, different state, same thesis: the benefit calculation is only as good as what gets counted toward it.

If your situation isn’t covered cleanly by anything in this post — some configuration of family, business structure, timing, or circumstance that doesn’t fit neatly into the sections above — email me. I can’t give personalized legal or financial advice, but I do read every message, and the ones that surface gaps in the article become future posts. Readers teaching me what I missed is how this blog gets better.

This post describes rules and trade-offs I’ve seen play out over 45-plus years of payroll and accounting work. It isn’t legal, tax, or financial advice — I’m not an attorney or a licensed financial advisor, and your situation will have details this post doesn’t cover. The decisions discussed here interact with estate planning, Medicare, state programs, and individual tax situations in ways that genuinely need professional review. The stakes are high enough that a good advisor earns their fee — don’t skip that step. What this post is: a counterpoint to the conventional advice, which runs the other direction — pay the spouse as little as possible, structure the business to minimize FICA without thinking about what that structure costs the kid’s earnings record, pay yourself the smallest “reasonable” salary you can defend. That advice isn’t wrong. It’s just incomplete. The earnings record on the other side of those decisions belongs to real people, and it does real work for them later.

The link to Maximize My Social Security is shared freely. I’m a paying customer of the tool, not an affiliate — no referral arrangement, no compensation for mentioning it. It’s pointed out here because it’s the one tool I’ve found that models the scenarios this post describes, and I use it myself.

Sources and further reading

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