Congress passed legislation in 1983 that has gradually increased the full retirement age for Social Security benefits. Social Security benefits may be withdrawn beginning at age 62 for those who choose to retire early, but the benefits will be smaller. For people who continue to work, part of their benefits may be taxed. To understand more about Social Security benefits and taxation, you might want to talk to the professionals at Elder Care Direction.
The Social Security tax
The government imposes taxes on employers and employees to pay for the Social Security program. the tax is collected through payroll and self-employment taxes. The amounts that are collected are used to pay people who are disabled and those who are retired. The tax is also used to give money to people who are receiving Social Security survivors’ benefits.
Social Security benefits
Social Security benefits are paid on a monthly basis to retirees who have reached the full retirement age if they have earned enough work credits during their careers. Some people choose to take early retirement through which the Social Security Administration deducts different income amounts until they reach their full retirement age.
Retirees who earn incomes exceeding the annual earnings limit will have their benefits reduced until they reach their full retirement age. Investment income is excluded. The income involved includes the salaries or wages earned by the older adults.
For example, in 2017, the Social Security earnings limit was set at $16,920. This means that seniors were able to earn up to $16,920 while they received benefits without having their benefits reduced. There are different rules for when you earn your income before or after you have reached the full retirement age.
Before you reach your full retirement age
If you collect Social Security benefits before reaching your full retirement age while you also earn more than the annual income limit, the SSA will take back a dollar for every $2 that you earn above the limit. If you earn more than the allowed limit in a year, your benefits will be reduced in the next year.
During the year when you reach the full retirement age
If your earnings exceed the annual limit during the year that you reach your full retirement age, the SSA will deduct one dollar for every $3 that you earn above the limit. However, there is a higher limit on earnings during the year that you reach the full retirement age. For example, the limit in 2017 was set at $44,800.
After you reach the full retirement age
After you have reached the full retirement age, you will not have an annual earnings limit. This means that you will be allowed to earn as much as you want without having your income deducted. However, your Social Security benefits may be taxed.
When seniors should file tax returns
If your Social Security benefits are your only income source, you do not need to file a tax return. Retirees who have reached the age of 65 years and who do not have spouses should file tax returns if their gross earnings total more than $11,950. Seniors who live on their Social Security benefits should not include them in their gross income.
Retirees who are not married will need to figure out if their additional income totals more than $11,950. Married retires who file joint returns will have their benefits taxed if they earn more than $23,000. If one spouse is younger than age 65, the amount is reduced to $22,050.
Some retirees must include their benefits in their gross income. Married retirees who receive benefits and who file separately must report all of their benefits as a part of their gross income. Single retirees whose combined income and half of their Social Security benefits total more than $25,000 will need to include a portion of their benefits as a part of their gross incomes. Married retirees will have to do so if the sum exceeds $32,000. Social Security disability benefits are tax-free, however.
Social Security benefits and the taxable amount
The income that you receive from other sources will affect the amount of your Social Security benefits that may be taxed, ranging from 0 to 85 percent. Unmarried people may face taxes on 1 to 50 percent of their benefits if their income from other sources falls between $25,000 and $34,000. Jointly filing spouses will face taxes on 1 to 50 percent of their benefits if their combined income falls between $32,000 and $44,000. For people whose incomes exceed these ranges, the taxable portion of their Social Security benefits will range from 51 to 85 percent.
Options for paying Social Security benefits taxes
You must pay any taxes for your Social Security benefits by April 15. You can choose to make estimated tax payments throughout the year or to have the Social Security Administration withhold the taxes from the benefits checks. If you want to have the taxes withheld, you should fill out IRS Form W-4V.
In January, the SSA will send a Social Security statement that details the amount that you received during the previous year. You will have the option of filing returns for your benefits without receiving payments. If you do this, you will get to accumulate retirement credits that increase when you do start receiving your benefits. If you delay receiving your benefits until age 70, you will increase your benefits by 8 percent for each year your payments were delayed.
Learn more from Elder Care Direction
If you are trying to decide when to start drawing your Social Security benefits, it is a good idea to speak with professionals about your options and the potential taxes that you might face. Schedule a consultation with Elder Care Direction today by filling out our contact form.