Monday, May 23, 2022

Do You Pay Tithes On Social Security Disability

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Why Should I Tithe

Do You Have to Pay Taxes on Your Social Security Disability Benefits?

The Bible tells us that tithing is a way to show that we trust God with our lives and our finances. Ready for a truth bomb? Tithing isnt for Gods benefit. He doesnt need our money. Instead, tithing is meant for our benefit because sacrificing a portion of our income reminds us to rely on God to meet our needs. Plus it makes us more aware of the needs of others too.

In fact, supporting the needs of pastors and the work of the local church is one of the main purposes of tithing. Tithing helps your local church actively be the church by helping others.

Giving encourages a grateful and generous spirit and can help steer us away from being greedy or loving money too much. Plus, being outrageously generous is a blast!

What Are The 3 Tithes

Jewish-Roman historian Flavius Josephus refers to the first, second, and third tithe. The third tithe was to be brought to the Levites, every third and sixth year of the seven year Sabbath cycle. The distribution of which to be given to those in need or want, especially widowed women and orphan children.

Do I Give 10% Of My Income Before Or After Taxes And Do I Add Income From Side Hustles

Honestly, whether you tithe from your gross pay or your take-home pay is totally up to you. The point here is that youre giving 10% of your income. Dave Ramsey gives off the top of his taxable income, but hell be the first to tell you: Just give and be a giver. Its about changing your spirit anyway.

As for your side hustle, the 10% you give should come from your entire income. So, if you have a part-time job on the weekends that brings in $300 extra each month, add that amount to your total monthly income and tithe $30 of it.

State of Debt in America

According to the Federal Reserve, 77% of American households are in debtand the reality is, thats probably true in your church. To learn more, sign up and get our research.

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Should I Tithe On My Social Security Income

Home Resources Newsletter Should I Tithe on My Social Security Income?

Ask the Coach

Question: Im retired, and someone told me that I need to pay tithe on my social security income. Is that true?

Answer: Well, yes and no!

When a person pays in to social security, the money they contribute should be tithed on. When a person begins to receive benefits from social security, an amount equal to the personal contributions can be subtracted before one begins to return tithe on the benefits received.

For example: The American worker pays 7.65 percent of their salary into FICA . Their employer matches that amount. If you worked for 20 years and made $50,000 a year, then you would have paid approximately $76,500 into Social Security over those 20 years. Therefore, when you begin to receive retirement income , you would not be responsible for tithing on that income until you surpass the $76,500 income mark. If a person is self-employed, he or she pays 100 percent of their FICA. If they return tithe on the amount paid in, then they would start returning tithe on any money after the threshold of total contributions has been reached.

However, for people who have worked over a period of up to 40 years or more and in different jobs, it can get even more complicated! Thus, another option is to return tithe on your income after deducting your payments made for FICA. Upon receiving Social Security benefits at retirement, you would tithe the total amount of those benefits.

Tithing On Your Fixed Income

Do You Have to Pay Taxes on Social Security Disability ...

When you retire, you may have various kinds of fixed income like social security, a pension, or rental income. A simple solution is to tithe 10% of your total fixed income.

From my experience, most tithers base their giving on their gross income. In retirement, you may wish to continue this practice.

However, you may have a different conviction and want to tithe on your net income. If you have tax withheld from your fixed income, you can check what arrived in your bank account that month and calculate your tithe based on that value.

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Do I Qualify For Social Security Benefits

So what about your benefits? If Social Security is still around when you retire, your benefits will be paid for by folks who are still working. But first, youve got to qualify to receive retirement benefits. You do that by working and paying those Social Security taxes, which helps you earn Social Security credits. To get retirement benefits through Social Security, you have to earn at least 40 credits over your working lifetime.9 Dont worry, its not that hard to do!

In 2020, you can earn a credit for every $1,410 you make, and you can earn up to four credits each year. So, if you earn at least $5,640 this year and you paid Social Security taxes on that income, congratulations! Youve earned the maximum four credits for the year.

After 10 years of work, most workers have earned all the credits they need to receive full retirement benefits once they reach retirement age . Do you know what that means? Its time to get to work!

How Do Social Security Benefits Work

Social Security is funded by payroll taxes paid by hardworking American workers like you.

In 2020, the Social Security tax rate is 12.4%. If you work for someone else, you and your employer split the bill, paying 6.2% each, and its taken straight out of your paycheck before you ever see it. If youre self-employed, youre on the hook for the entire 12.4%, but you can claim the employer half of the tax as a tax deduction.5,6

For high-income earners, theres a limit on how much of your income is subject to the Social Security tax. For 2020, you wont pay Social Security taxes on any income above $137,700.7

Now listen, its important to remember that these taxes are not used to pay for your future benefits. Instead, those payroll taxes youre paying are collected by the IRS and sent out to folks who are currently receiving Social Security benefits .

Today, the taxes you and about two other workers pay cover the benefits for one Social Security beneficiary. And its only going to get worse: By 2035, therell be only 2.3 workers for each beneficiarybut the number of beneficiaries will jump up by over 20 million.8Uh-oh. Now you can see why the math on Social Security is making a lot of folks nervous.

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Tithing On Your Portfolio Income

In addition to fixed income, many retirees have investments that generate dividend income .

There are 2 main conflicting opinions on this matter:

A. You should tithe 10% of your portfolio income just as if they were wages you earned. A true first fruits approach.

B. You already tithed on this money before you invested it. Therefore, you are not expected to tithe on money that it earns.

My opinion is that you should tithe based on personal conviction. I cannot say which is correct for you.

However, I expect that when you read the two opinions, one felt more right to you than the other.

Financial Advice From A Retired Pastor

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Retirement does not necessarily mean the cessation of ministry activity. Rather, it simply means no longer relying on ministry to generate revenue needed to support your lifestyle. Everyones path to retirement will certainly look different. However, there are people like Al LaCour who have retired and can offer insights from their experience.

Al is a retired PCA pastor who also served as the National Coordinator for RUFs ministry to international students. Al and his wife, Elaine, have been and continue to be faithful financial stewards from their first jobs to beyond retirement. By retirement, they were able to be debt-free, mortgage-free, and free to be generous givers.

For Al, stewardship means simply, to manage the time, talents, and treasure that you are given and do not own. Al offered four principles he used personally when planning for retirement:

1. All things work together for good

Every minister will face unique life opportunities and challenges. Some may have double incomes, some may not. Some may have inherited assets, some may not. Some may have prolonged medical issues, some may not. Ultimately, God directs your steps.

Comparison will not help you plan for retirement. Faith and counsel will. Too many pastors compare their situation to others, leading either to pride or envy. We have to trust that God knows the end from the beginning. When faced with challenges, we need to turn to God for wisdom and adjust appropriately.

2. Tithe on all income

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What Will Social Security Be Like When I Retire

As more and more baby boomers start to retire, the number of Americans 65 and older is expected to jump from roughly 56 milliontoday to about 78 million in 2035. At the same time, there will be fewer workers supporting more retirees, which puts even more of a strain on the system.12

The year 2035is shaping up to be a big year for Social Security for an even bigger reason: Thats the year Social Security is expected to run out of money if nothing changes.13 Depending on what Congress does , future retirees might need to prepare for the possibility of reduced benefits, and workers might see a hike in Social Security taxes.

As more and more baby boomers start to retire, the number of Americans 65 and older is expected to jump from roughly 56 milliontoday to about 78 million in 2035. At the same time, there will be fewer workers supporting more retirees, which puts even more of a strain on the system.12

Whats the bottom line here? We cant depend on Washington to take care of us in retirement. Do you really want to put your retirement dreams in the hands of the government? Heck no!

If you end up getting retirement benefits when you decide to retire, thats great. Any money you get from Social Security should be considered icing on the cake. But making Social Security the main ingredient of your retirement plan? Thats a recipe for disaster.

Should We Pay Tithing On Social Security

Gramps,

My wife and I recently retired. We have begun receiving Social Security and Medicare. What do you advise regarding tithing?

Jack

Jack,

Tithing is an important commandment for several reasons. The obedience of the commandment helps build an appreciation for sacrifice. The money is used to provide needed support for the Church such as maintaining the meetinghouses, temples, and publications that are used during the Sabbath. I could continue, however I feel you are quite well versed in the principle already.

The scriptures tell us this in Doctrine and Covenants 119:4

And after that, those who have thus been tithed shall pay one-tenth of all their interest annually and this shall be a standing law unto them forever, for my holy priesthood, saith the Lord.

So the standard is one tenth of all our interest annually. Simple enough so far. However the actual definition of that has some room for interpretation. For instance the most common question is Does that mean our gross income, or is it after taxes? In my thinking, and according to nearly every bishop Ive discussed this with, the actual answer is left up to us. We actually do not answer to the bishop for our tithes, but to the Lord. We give an accounting to the bishop as to whether or not we feel we are full tithe payers. As such, if we feel we are honestly paying a full tithe, then we may answer yes with a clean conscience.

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How Should I Increase My Giving When I Start Making More Money

When things are going well and you find yourself with more income than you need, it can be easy to spend all that extra cash on yourself. But think of it as a great opportunity to give above and beyond your tithe. Many regular tithers often give above 10%, landing somewhere between 1120%.2

Thats why its so important to budget what youll do with the extra moneyso you can make sure youre giving some of it away too. Depending on what Baby Step youre on, that extra money can go toward paying off debt, giving more in offerings, upping your investments, or spending some fun money.

Then look aroundask friends if they know of anyone in need and watch for opportunities to give that money away. Believe us, if youre intentional about looking for ways to be generous, youre going to find them.

Should I Tithe While Trying To Pay Off Debt

do you pay taxes on social security disability

Even if youre in debt or walking through a rough financial season, tithing should still be a priority. Yepyou read that right. While its tempting to throw that money at your debt, the discipline and faith that tithing brings are so worth it. Even while youre paying down debt, you can still have an attitude of generosity.

If you think itll take a miracle to get through the month with 10% less in your wallet, you might need to do a lifestyle check. Take a look at your budget and find ways to cut back on spending. It might mean limiting some of your fun money, packing your lunch instead of eating out every day, brewing your own coffee, or buying generic productsbut it is possible!

But you should hold off on offerings while youre paying off debt, though. And if youre in debt, you should put all your extra money toward your debt snowball. Once youre out of debt, youll be free to give as generously as you want to!

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Tithing On Other Retirement Income

In addition to Social Security, you may also have income from a pension, annuity, or withdrawals from retirement accounts such as 401/k, 403b, IRAs, SEPs, etc. Each of these is a little different.

Pensions. Although they are increasingly rare, if you receive a pension, either as a lump sum or as a lifetime annuity, and did not contribute anything to it, then it should be treated as a new income stream in retirement that you have not tithed on. If you did make contributions to it, then it looks much like the employee Social Security scenario I discussed above, i.e., some of what you receive has been tithed-on, and some have not.

Annuities. These are trickier. All annuities, regardless of type, are funded by either a lump sum payment or a series of payments over time . Once you start receiving payments, it looks almost exactly like Social Security or a pension. If the money used to fund the annuity has already been tithed-on, you would only tithe on it once you have received back the full amount you paid. Typically, that break-even period will be much longer than with Social Security because the payouts are lower, especially in a low-interest environment like we have today.

An IRA looks much like an annuity in the sense that you contribute to it, it grows , and then you take the money out in retirement. If you had tithed on your IRA contributions , you would not tithe until you had taken out all the pre-tithed-on contributions.

Is There A Better Way

If you were to ask, Hey, do I really need to crunch a bunch of numbers to decide what to give to the Lord? my response would be, no, you dont. But if you want to use that approach because its consistent with your convictions and what youve done in the past, then I say go for it, even though I think there is a better way.

Some believers who want to honor the Lord by giving a tithe can get caught up in things like what exact percentage to give or whether the tithe is paid on gross or net income. However, as we mature in the faith, perhaps it should start to be more of a transition from percentages and calculations to a focus on the heart. Ultimately, we want to become cheerful givers where giving is done joyfully, worshipfully, generously, and consistently in response to all that God has done for us.

If you mostly align with the perspective on tithing number above, you could legitimately argue that any income you receive in retirement that you originally tithed on doesnt need to be tithed-on again. But to be consistent, you should also tithe on any new income beyond what you initially tithed-on, regardless of whether its from Social Security or the other sources of retirement income I mentioned.

If that is your position, I would have no problem with that. You can delay tithing until you have reached your break-even point, but keep in mind that by doing so, you also delay the joy and blessings of giving regularly.

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Larger Standard Deduction For The Aged

If you’re over 65, you also qualify for the same additional deduction. If you’re single, you get an additional deduction of $1,700, and if you’re married, each spouse over 65 gets an additional deduction of $1,350.

What if you’re blind and over 65? You can get the additional deductions for both blindness and being over 65.

Special Deductions For People With Disabilities

Should I Opt-Out of Paying Into Social Security?

First we’ll look at deductions. A tax deduction reduces your taxable income, so the more deductions you have, the less income you’ll have to be taxed, and the less tax you’ll have to pay. The amount a deduction will save depends on your top tax rate. For example, if you’re in the 12% tax bracket, a $100 deduction will save you $12 in income tax.

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