Washington, DC - Dear Rusty: I am 73 and self-employed, but each year I must pay self-employment tax – money for Social Security and Medicare – as part of my income taxes. I have been collecting Social Security since I was 62, and always hoped that my benefit might increase due to these continued FICA contributions. I guess not. Must I continue to pay this tax? Signed: Still Paying Social Security

Dear Still Paying: I can understand how logic might imply that contributions you continue to make to Social Security after you start collecting benefits could increase your benefit amount, but I need to dispel that thought. Federal Insurance Contributions Act (FICA) payroll taxes don’t go into an individual account, which determines your benefit, so continuing to pay FICA tax doesn’t directly affect the amount of your Social Security payment. This is true whether you are an employee who pays the 6.2% Social Security tax and the 1.45% Medicare tax, or if you are self-employed and pay both the employee and employer portion of FICA. There is no cut-off age and you must continue to pay FICA taxes as long as you are working and earning, but your Social Security benefit amount will not change because you are paying those taxes. Collected FICA taxes are deposited into Social Security’s OASDI (old age, survivor and disability) Trust Fund and, for Medicare, the HI (Health Insurance) Trust Fund. Those trust funds are where Social Security and Medicare benefits are paid from, so portions of your FICA contributions go into the appropriate pot to help fund benefit payments for all current and future beneficiaries.

But even though the FICA taxes you pay don’t directly affect your Social Security benefit, continuing to work might have an effect on your benefit amount. If your earnings amount for any current year is higher than the inflation-adjusted earnings in any of the 35 years originally used to compute your Social Security benefit amount, Social Security will automatically adjust your benefit to reflect that fact. Social Security looks at your earnings from your income tax returns annually and makes any appropriate benefit adjustment retroactively. But remember, earnings from your early earning years will be adjusted for inflation so, for example, $26,000 earned in say 1980 would be about $92,000 after it is adjusted for inflation, and that’s the amount you’d have to earn more than today to replace it in the benefit formula.