Check In With Your Accountant Or Financial Advisor
I always think it’s best to run the numbers by your accountant or other financial advisor. It’s great to be able to continue to work for many reasons. In fact, the Bureau of Labor Statistics projects the biggest annual increase in the labor force through 2024 will be in the 65 to 75 age group. But make sure you know what continuing to work at this point in life means in terms of your overall financial situation.
Have a personal finance question? Email us at askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.
If You’re Not Sure Why You Received A Payment
If you receive a check or direct deposit payment from the Treasury Department and do not know what its for, contact the regional financial center that issued it. Only the agency that authorized the payment can explain why you received it.
If you received a check, look for the RFCs city and state at the top center. Then contact that RFC to find out which federal agency authorized the payment. It will be one of these:
If you received payment byelectronic funds transfer , or direct deposit, follow the directions under Find Information About a Payment.
Use the Treasury Check Verification System to verify that the check is legitimate and issued by the government.
How Much Can I Earn In 2020 And Still Collect Social Security
In 2020, the yearly limit is $18,240. During the year in which you reach full retirement age, the SSA will deduct $1 for every $3 you earn above the annual limit. For 2020, the limit is $48,600. The good news is only the earnings before the month in which you reach your full retirement age will be counted.
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Bottom Line: The Earnings Test Is Individual
The quick summary to this is to remember that the earningstest is an individual test. Normally, a spouses income will not impact yourbenefits. But excess earnings can reduce or eliminate their own benefit as wellas any benefits paid to you if you receive benefits based on their work record.
Before we goId like to know what you think. Do you think the earnings test should be based on single or joint income? I look forward to reading your comments below.
Alsoif you have questions, join my FREE !
One last thing, be sure to get your FREE copy of my Social Security Cheat Sheet. This is where I took the most important rules and things to know from the 100,000 page Social Security website and condensed it down to just ONE PAGE! Get your FREE copy here.
Question: I Just Retired At 62 And Get About $4000 Per Month In Income From My Investments If I Claim Social Security Will My Benefits Be Reduced
Answer: TheSocial Security earnings test can certainly reduce your retirement benefits if your income is too high and you haven’t reached your full retirement age yet, which you haven’t. In 2018, Social Security benefits can be reduced if you make more than $17,040 and will reach full retirement age after 2018, at the rate of $1 for every $2 in excess income. There’s a separate, more lenient earnings test that applies if you’ll reach full retirement age during 2018, and if you’ve already reached full retirement age, there are no earnings restrictions for Social Security beneficiaries.
However, you don’t need to worry. When the Social Security Administration applies its earnings test, only earned income is considered, such as wages from a job or profits from a business you own and operate. Investment income doesn’t count, nor do capital gains, pension income or income from any annuities you have.
In other words, it doesn’t matter if your investments are paying you $1,000, $10,000 or $1 million per month. If you don’t have income from a job or a business you actively participate in, your Social Security benefits won’t be reduced.
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How To Stop Social Security Check Payments
The SSA can not pay benefits for the month of a recipients death. That means if the person died in July, the check received in August must be returned. Find out how to return a check to the SSA.
If the payment is by direct deposit, notify the financial institution as soon as possible so it can return any payments received after death. For more about the requirement to return benefits for the month of a beneficiarys death, see the top of page 11 of this SSA publication.
Family members may be eligible for Social Security survivors benefits when a person getting benefits dies. Visit the SSA’s Survivors Benefits page to learn more.
Do Distributions Count As Income
Dividends come exclusively from your business’s profits and count as taxable income for you and other owners. General corporations, unlike S-Corps and LLCs, pay corporate tax on their profits. Distributions that are paid out after that are considered after-tax and are taxable to the owners that receive them.
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Is Social Security Considered Income
Unearned Income is all income that is not earned such as Social Security benefits, pensions, State disability payments, unemployment benefits, interest income, dividends and cash from friends and relatives. In-Kind Income is food, shelter, or both that you get for free or for less than its fair market value.
How Do I Avoid Taxes On Social Security And Retirement Income
Here’s how to reduce or avoid taxes on your Social Security benefit:
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Know The Earnings Limits
Those hoping to work in retirement need to be especially careful if they’re planning to claim Social Security benefits early. Even if youâre just working part-time, itâs important to consider how that continuing income will affect your benefits.
The SSA caps how much you are allowed to earn if you start taking your benefits before full retirement age, which is 66 for most baby boomers. For the most recent annual earned income cap, view the current annual contribution limits. For every $2 you earn over the limit, the SSA withholds $1 off the top of your benefits. Once you reach the year that you’ll turn full retirement age, the earned income cap goes up, and for every $3 you go over, itâs a $1 withholding during the months until your birthday.
There is some good news, however: Because the penalty is determined by your individual earned income, if you retire early but your spouse doesn’t, your spouse’s earned income will not be factored into the earnings limit. Additionally, when you reach your full retirement age, the earnings limit disappears and Social Security will recalculate your benefit amount if you were negatively impacted by the earnings limit.
Keep in mind, if you file your tax return jointly, your spouse’s earnings will be included when calculating your combined income for purposes of determining the taxation of your benefits.â1
What Is Social Security Disability Insurance
Social Security Disability Insurance is a program administered by the Social SecurityAdministration that provides monthly cash benefits to disabled individuals and families who have a significant history of working. There is no limit on the assets an individual can have and still be eligible for SSDI.
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What Income Is Counted Against Social Security
We only count your earnings up to the month before you reach your full retirement age, not your earnings for the entire year. If your earnings will be over the limit for the year and you will receive retirement benefits for part of the year, we have a special rule that applies to earnings for one year.
A Couple Of Concernstaxes And Medicare Premiums
This all sounds like good news so far, but you should also be aware that continuing to work past 70 could cost you a bit more in taxes and Medicare premiums.
- Required Minimum Distributions increase your taxable incomeIf you have traditional retirement accounts, you must take an RMD at age 70½ or 72 depending on your birthday. This is considered ordinary income and could possibly push you into a higher tax bracket, especially as you continue to earn other taxable income. Not only would that possibly increase your income tax bill, you’d also most likely have to pay taxes on your Social Security benefits as I describe next.
- Increased income may make your Social Security benefits taxableThe percentage of your Social Security benefits subject to income tax will depend on your annual income. Currently, if you’re a single filer and make $25,000 to $34,000, up to 50 percent of your benefits may be taxed for income over $34,000, up to 85 percent of benefits may be taxed. Current limits for married filing jointly are $32,000 to $44,000 and over $44,000 respectively.
- Higher income might mean higher Medicare Part B and D premiumsSimilarly, you may be charged more for Medicare premiums if you earn over a certain amount. For 2022 those thresholds are $91,000 for single filers and $182,000 for married filing jointly. However, if you still have healthcare coverage through an employer, you may be able to delay taking Part B and possibly Part D.
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Lost Or Stolen Federal Payments
Report your lost, missing, or stolen federal check to the agency that issued the payment. It’s usually one of these paying agencies. If your documentation indicates it’s a different agency, and you need its contact information, look in the A-Z Index of U.S. Government Departments and Agencies.
To get an update on your claim, contact the Treasury Department Philadelphia Financial Center at 1-855-868-0151, option 1.
How Does Roth Affect Social Security
Your Roth IRA distributions won’t affect your Social Security benefits, but your earned income will. … Also, the amount you make can cause the taxation of your benefits. Up to 85 percent of your Social Security benefits can be taxed at normal income tax rates depending on your amount of earned income.
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What Income Is Included In Your Social Security Record
Only earned income, your wages, or net income from self-employment is covered by Social Security. If money was withheld from your wages for Social Security or FICA, your wages are covered by Social Security. This means you are paying into the Social Security system that protects you for retirement, disability, survivors, and Medicare benefits.
Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes. You may need to pay income tax, but you do not pay Social Security taxes.
What Affects Social Security Benefits
We compute your benefits based on your earnings record. You choose to get benefits before your full retirement age. You can begin to receive Social Security benefits as early as age 62, but at a reduced rate. We reduce your basic benefit by a certain percentage if you retire before reaching full retirement age.
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What Is The Maximum Amount You Can Earn While Collecting Social Security In 2020
In 2020, the yearly limit is $18,240. During the year in which you reach full retirement age, the SSA will deduct $1 for every $3 you earn above the annual limit. For 2020, the limit is $48,600. The good news is only the earnings before the month in which you reach your full retirement age will be counted.
What Are The Three Forms Of Earned Income
Understanding The Three Types Of Income
- Earned Income. The first type of income is the most common: earned income. …
- Capital Gains Income. The next type of income that you can earn is called capital gains income. …
- Passive Income. The final type of income that you can earn is called passive income.
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Examples Of Assessable Income
Assessable income includes the gross employment income you earn from work. This can be:
Assessable income can also be:
- real estate income from things like rental properties or boarders and lodgers
- deemed income from financial investments
- deemed income from money in superannuation funds if youve reached Age Pension age
- distributions or dividends from a private trust or private company
- reportable superannuation contributions
- certain scholarship amounts.
How Much Of Your Social Security Income Is Taxable
Social Security payments have been subject to taxation above certain income limits since 1983. No inflation adjustments have been made to those limits since then, so most people who receive Social Security benefits and have other sources of income pay some taxes on the benefits.
No taxpayer, regardless of income, has all of their Social Security benefits taxed. The top-level is 85% of the total benefit. Heres how the Internal Revenue Service calculates how much is taxable:
- The calculation begins with your adjusted gross income from Social Security and all other sources. That may include wages, self-employed earnings, interest, dividends, required minimum distributions from qualified retirement accounts, and any other taxable income.
- Tax-exempt interest is then added.
- If that total exceeds the minimum taxable levels, then at least half of your Social Security benefits will be considered taxable income. You then have to take the standard deduction or itemize deductions to arrive at your net income. The amount that you owe depends on precisely where that number lands in the federal income tax tables.
Combined Income = your adjusted gross income + nontaxable interest + half of your Social Security benefits
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What Income Counts Towards Social Security Earnings Limit
In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit. In 2022, this limit on your earnings is $51,960. We only count your earnings up to the month before you reach your full retirement age, not your earnings for the entire year.
Special Monthly Income Limit Rule For The First Year
Many people who retire mid-year have already earned more income than the limit allows. This is why there is a special rule where the earnings limit switches from an annual limit to a monthly limit.
This rule allows you to receive a check for any month you are considered retired by the SSA even if you have already exceeded the annual earnings limit.
That sounds straightforward enough but the interpretation of retired as defined by the SSA can cause some confusion. Heres what they mean by this term:
You are retired if your monthly earnings are 1/12 of the annual limit or less and you did not perform substantial services in self-employment.
Essentially, you are considered retired unless you make more than the income limit. The rule for the year you reach full retirement age also applies when working with the monthly limit. In this calendar year for 2021, the limit is $4,330 .
Its very important to remember that in the year following this first year, the monthly limit is no longer used and the earnings limit is based solely on your annual earnings limit.
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More On Earning Income While Getting Benefits
If benefits get reduced because an underage Social Security recipient earns more than the cap amount, the money isnt actually lost. Its only delayed. After the recipient reaches full retirement age, Social Security will recalculate the benefit. The new benefit will be higher to make up for payments that were withheld because of excess earnings.
Sometimes, earning money while receiving Social Security can also increase your benefit amount. This can happen if, during a year you receive Social Security benefits, you earn enough money to make the year one of your highest earning years. Social Security calculates benefits based on a workers highest earning years. So adding a new high level to your earnings record could cause your benefit to increase.
There are different rules for people getting Social Security disability or Supplemental Security Income benefits. These people have to report all earnings to Social Security. In addition, people who earn money for working outside the U.S. are treated differently.
Keep in mind that Social Security uses an estimate for earnings during the coming year when calculating benefits. Recipients are expected to provide an earnings estimate to help the agency calculate benefits. If it appears that earnings will be different from the estimate, recipients are supposed to inform Social Security as soon as possible.
What Is A Social Security Card
Your Social Security card is an important piece of identification. You’ll need one to get a job, collect Social Security, or receive other government benefits.
When you apply for a Social Security number , the Social Security Administration will assign you a nine-digit number. This is the same number that is printed on the Social Security card that SSA will issue you. If you change your name, you will need to get a corrected card.
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How Does The Ssa Define Income
The amount of money you make, called your income, includes not just cash, but items that can be used as — or used to obtain — food, clothing, or shelter. Specifically, the SSA counts the following as income.
- Money you earn as a result of performing work .
- Payments you receive from such sources as Social Security, veterans benefits, a pension, alimony, or child support .
- Any type of free rent/shelter or food benefits you are receiving from a nongovernmental source. For example, if you are allowed to live rent free with a friend or your parents, this will be considered as income .
- A portion of income earned by other people in your house . This is called “deemed” income, because although you don’t earn it, it is assumed that a portion of this money will go towards your care and upkeep.