wages & social security

[gman]

Taxpayer retires in August. Starts to draw Social security in Sept. Will earnings in first part of the year (til Aug) affect social security wage limit.

[ChEAr$]

At what age will she retire?

[gman]

64

taxpayer will retire at age 64

[Davc]

No, earnings are prorated per month in the first year but TP needs to be able to document when the earnings occurred.

[taxmom34]

social security will probably ask for last pay stub with year to date totals. people retire in the later part of the year and it has no effect on their benefits in the first year of retirement.

[Burke]

It will be an issue, as SS will use the W-2/Sche C info as reported on the tax return. They do not know when it is earned. Then the TP will have to gather info to prove when it was earned. If the client knows this up front, it is easier. Most people throw away those pay stubs, especially after tax time. Also, cumulative vacation pay and bonuses which are attributable to an earlier year will be excludable from the calculation. But the employer has to complete Form SSA-131.

[Peachie]

It should have no effect

Taxpayer retires in August. Starts to draw Social security in Sept. Will earnings in first part of the year (til Aug) affect social security wage limit.

When I began to draw my SS in 2008 afterr losing my job in August-the only thing I was asked is would I have a monthly income of more than-$1180, or some similar amount. I told them the only other income I would have would be unemployment. These two benefits can be drawn at the same time with no penalty.

However, in November of the same year, my former employer decided to grant me late severance pay. I notified SS and was told that was fine and would be no problem. NOT. I received a letter from them in 2009 that was quite ominous. I wasn't alarmed. I just deicided I needed to know what they were trying to determine. I realized it had to do with the severance. I wrote them a letter, pulled the pay stub showing SEVERANCE and sent a copy to them. Never heard another word.

Of course, my Tax Prep is shown as a cumulative figure on my 1040 and I have to deal with that but for all intents and purposes--she should be fine if she's not going to make more than a certain dollar amount each month. I'm ot sure what that amount is now.

Peachie

[Mo Sheets]

A curiosity question....

Do they take into consideration the spouse's income when an individal decides to draw Social Security? I know there is a limit as to what a person can earn if they decide to draw Social Security before their full retirement age but wasn't sure if the spouse's income comes into play at all? Can anyone enlighten me who has filed?

Thanks!

[JohnH]

The spouse's income only comes into play in determining the taxable amount of SocSec benefits.

The earnings limit for early retirees is calculated only on an individual basis in detemining whether any benefits must be repaid. I've read somewhere that even if one earns enough to trigger repaymet of benefits, the long term net effect can be fairly small because:
1) the excess income equals real dollars in your pocket;
2) the excess earnings eventually trigger an increase in future benefits.

An effective 50% tax rate seems rather harsh, and I've never actually run the numbers. However, it seems logical that the net effect is less punitive than it first appears. (unless of course, you die before getting the benefit of the increased future benefits. But I've never actually heard of anyone complaining about that particular outcome )

[Jesse]

When I began to draw my SS in 2008 afterr losing my job in August-the only thing I was asked is would I have a monthly income of more than-$1180, or some similar amount. I told them the only other income I would have would be unemployment. These two benefits can be drawn at the same time with no penalty.

However, in November of the same year, my former employer decided to grant me late severance pay. I notified SS and was told that was fine and would be no problem. NOT. I received a letter from them in 2009 that was quite ominous. I wasn't alarmed. I just deicided I needed to know what they were trying to determine. I realized it had to do with the severance. I wrote them a letter, pulled the pay stub showing SEVERANCE and sent a copy to them. Never heard another word.

Of course, my Tax Prep is shown as a cumulative figure on my 1040 and I have to deal with that but for all intents and purposes--she should be fine if she's not going to make more than a certain dollar amount each month. I'm ot sure what that amount is now.

Peachie

I would go straight to the office and talk to someone face to face. Telephone and letter writing too often results in incorrect information and dead ends. As Burke suggested, have the employer complete Form SSA-131. I don't know how many years back you are able to go but it may be worth a try.

A friend was in a similar situation - kept calling and talking to different people and kept receiving the same wrong answer. Finally she went to an actual office, talked with someone and received a form to have the employer fill out - probably the SSA-131 - they ended up with a refund of nearly $8,000.

[Peachie]

I am not sure I understand your point Jesse.

I would go straight to the office and talk to someone face to face. Telephone and letter writing too often results in incorrect information and dead ends. As Burke suggested, have the employer complete Form SSA-131. I don't know how many years back you are able to go but it may be worth a try.

A friend was in a similar situation - kept calling and talking to different people and kept receiving the same wrong answer. Finally she went to an actual office, talked with someone and received a form to have the employer fill out - probably the SSA-131 - they ended up with a refund of nearly $8,000.

I have not really had any trouble with SS. I received funds unexpectedly and when they got the report they thought I may have found a job and was inquiring about it. Once I wrote them that it was severance pay and provided the stub-that was it. I talked to the same person that set my social security up initially and he failed to note it. Took all of 15 minutes to handle. I have always been able to handle any concerns via telephone.

Thanks for your comments.

Peachie

[Burke]

You are one of the lucky ones. That and the fact that you had that pay stub. Have one now who is going round and round with SSA. Personal visit coming up and Form 131 should settle it. PS: Not sure why severance pay and bonuses are not considered. They are treated as earnings, after all, as well as vacation pay, on the 1040. I kind of get vacation pay -- it is usually based on credit for previous years' service.

[Peachie]

My letter said..

You are one of the lucky ones. That and the fact that you had that pay stub. Have one now who is going round and round with SSA. Personal visit coming up and Form 131 should settle it. PS: Not sure why severance pay and bonuses are not considered. They are treated as earnings, after all, as well as vacation pay, on the 1040. I kind of get vacation pay -- it is usually based on credit for previous years' service.

SS wanted to make sure my earnings were being calculated properly-HEHE-I think Severance may be considered but I think in my case they wanted to be sure I was not working. I certainly treated the income as earnings.

Since this occurred in 2009 and I received the severance in 2008--all of it was a part of my 2008 tax return which is why it was so easy to retrieve the stub.

Hope your client gets it all done and comes out ok.

Peachie

[Mo Sheets]

Thanks John!

I really appreciate your response. We've run the numbers and I think my husband is going to go ahead and begin taking his benefits at age 62. I assumed the wage limit would be based off of his earnings alone, but wanted to make sure....

My Mom died at age 58 so she was never able to collect. My Dad began collecting at 62, figuring he had had a heart attack at 42 so every day was a gift. He lived to be 72, which at the time, was the "break-even" point for him, without considering the time-value of money.

Thanks again for taking the time to respond.

Mo