Social Security Question

[Corduroy Frog]

Long-time customer is retiring in September, and will be drawing his first social security check in October, 2007. He is not full retirement age, and thus cannot earn more than $12,800 annually. If he does, he must repay $1 to SSA for every dollar he earns.

He is a remodeling contractor, and told them he had already earned $30,000 as of April 30 when he discussed this with him. He estimates by the time he reitires in September, he will have taxable income of $53,000 up to that point in 2007.

The question by now, if you haven't figured it out, is whether the $12,800 ceiling applies to a calendar year.

This is more of a social security question than a tax question. But we get asked about retirement issues all the time...

[veritas]

From SSA website

Special rules for the first year you retire

Sometimes people who retire in mid-year already have earned more than the yearly earnings limit. That is why there is a special rule that applies to earnings for one year, usually the first year of retirement. Under this rule, you can get a full Social Security check for any whole month you are retired, regardless of your yearly earnings.

In 2007, a person under full retirement age for the entire year is considered retired if monthly earnings are $1,080 or less. For example, John Smith retires at age 62 on October 30, 2007. He will make $45,000 through October.

He takes a part-time job beginning in November earning $500 per month. Although his earnings for the year substantially exceed the 2007 annual limit ($12,960), he will receive a Social Security payment for November and December. This is because his earnings in those months are $1,080 or less, the monthly limit for people younger than full retirement age. If Mr. Smith earns more than $1,080 in either of those months (November or December), he will not receive a benefit for that month.

Beginning in 2008, only the yearly limits will apply to him.

Also, if you are self-employed, we consider how much work you do in your business to determine whether you are retired. One way is by looking at the amount of time that you spend working. In general, if you work more than 45 hours a month in self-employment, you are not retired; if you work less than 15 hours a month, you are retired. If you work between 15 and 45 hours a month, you will not be considered retired if it is in a job that requires a lot of skill or you are managing a sizable business.

[George Boutwell]

Numbers

He is not full retirement age, and thus cannot earn more than $12,800 annually. If he does, he must repay $1 to SSA for every dollar he earns

As already pointed out, the 2007 limit is $12,960; and the reduction is $1 in benefits, for every $2 earned above that amount.

[S T]

SSA and still Earning for 2007

As Veritas pointed out, rules possibly could or will change in 2008,

For 2007, Maybe, go to the SSA.Gov site, there is a way to find questions and answers. One of them was the year of retirement, and how they calculate the benefit and any repayment factor for part of the year. (Employed part of the year and then collecting SSA benefits for part of the year)

Following is not the full answer and I am sure there is more, and you could find an answer that fits your taxpayer's circumstance, of which we do not have all of the info.

Also, you or the taxpayer can email SSA and they will respond!

When entitlement to benefits begins or ends during the year, many people work in months before or after entitlement. We use a monthly test to consider these earnings. The monthly earnings test provides that a person can receive full benefits for any month in which he or she does not earn wages over one-twelfth of the annual exempt amount and does not perform substantial services in self-employment

Let us know what you find out,

Sandy

[Bees Knees]

TTB, page 22-3 under the heading "Special rules for the first year of retirement," provides an example of how to calculate the earnings limit in the year a person retires. The $1 in benefits reduction for every $2 earned above the earnings limit does not apply during the months prior to retirement.

[Davc]

A self-employed person can actually have a loss and lose benefits in the year they retire.

[baxbook]

First Year SS

My husband applied for Social Security a year ago August at age 62. Since he had already made more than the $12,400 limit, he did not start receiving benefits untill 2007. His first check was recieved in February for January since they pay after the fact.

[Corduroy Frog]

Information Statements

During the first partial year, is there an audit trail from information statements such as W-2s? e.g. an $80,000 W-2 is prorated to $40,000 after retirement if effective date is July 1?