Social Security Question

somarco

GA Medicare Expert
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Atlanta
Husband and wife both 64, both work. Husband dies. Wife continues to work but applies for SS widows benefit.

Will her widows benefit be taxed if she earns above whatever the earnings cap is if she were receiving benefits based on her SS record? What is the 2014 earnings cap before SS is taxed?
 
Husband and wife both 64, both work. Husband dies. Wife continues to work but applies for SS widows benefit.

Will her widows benefit be taxed if she earns above whatever the earnings cap is if she were receiving benefits based on her SS record? What is the 2014 earnings cap before SS is taxed?

Once you reach $25k, 50% of your SS is subject to income tax. Over $34k, and 85% is subject to income tax.


Also, she has to be mindful of the "Earnings Test", since she has not reached "Full Retirement Age" (66) yet.

The "Annual Exempt Amount" (aka cap on earnings before test kicks in), is a measly $15,480.

This wonderful little piece of the IRC "withholds" $1 in benefit, for every $2 in earnings over $15,480....

So depending on how much she makes that could literally erase all of the Survivor benefit.

But, it is just a temporary withholding. They do give it back to her once she reaches Full Retirement Age (66) and "needs" the money...


Here is a link to the pertinent section of pub 915... just in case your in the mood for some light reading material...
Publication 915 (2013), Social Security and Equivalent Railroad Retirement Benefits


The SSA actually has easier to understand material:
http://www.ssa.gov/oact/cola/rtea.html
http://www.ssa.gov/planners/taxes.htm


Not a fun conversation to have with a client.
 
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Thanks Tyler. I skimmed the links and will go back over it again later. I had looked through Pub 915 before but it was making me dizzy. Figured someone could distill it down for me.

I knew about the 50% tax but didn't realize you get it back at FRA. Or are you saying she only gets it back if the govt decides she "needs" it?

If she waits until FRA (age 66 in her case) to collect the widows benefit and continues to work there won't be an earnings test and 50% hit?
 
Thanks Tyler. I skimmed the links and will go back over it again later. I had looked through Pub 915 before but it was making me dizzy. Figured someone could distill it down for me.

Use the SSA links I provided. They are actually pretty easy to understand (compared to the irc)

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I knew about the 50% tax but didn't realize you get it back at FRA. Or are you saying she only gets it back if the govt decides she "needs" it?

If she waits until FRA (age 66 in her case) to collect the widows benefit and continues to work there won't be an earnings test and 50% hit?

You are confusing 2 different tests.

First, there is the "Income Tax Test". That is the 50%/85% test. You dont get any of your taxes paid back, uncle sam spends it all.


Second, since she is under NRA (normal retirement age), she is also subject to (for lack of a better word and to make it easy to understand) the "Withholding Test".

Officially the "Withholding Test" is officially called the "Earnings Test", so it is easy to confuse it with the separate taxation test that decides the 50%/85%.

The Withholding Test has the separate $15,480 exemption.
They withhold $1 for every $2 you earn above the $15,480 if you are under age 66.
This withheld amount is paid back to you once you reach age 66. So she only has 2 years to worry about the survivor benefits being reduced.

Also, just to complicate things even further, once she reaches 65 they reduce the withheld amount (increase her benefit), using a formula of $1 withheld for every $3 earned over $15,480.



So she will be taxed on the benefit if she makes over $25k. She will never get the taxes back.

Then her actual benefit amount will be reduced until age 66. Once she is 66 they give her back the withheld reductions.


Clear as mud right?
 
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Dang Tyler. You make this sound so simple. Guess I need to pour myself an adult beverage and noggin this out myself.
 
Thanks for the education and links. Perhaps some of the serious life insurance and annuity agents learned something from this thread.

I used to know this crap back in the old days but have been away from it for so long I wasn't even sure where to start.
 
Thanks for the education and links. Perhaps some of the serious life insurance and annuity agents learned something from this thread.

I used to know this crap back in the old days but have been away from it for so long I wasn't even sure where to start.


No problem Bob. SS sucks. The SSA at least tries to make things understandable on their site. The IRS just doesnt care!
 
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