Q & A
Ask Rusty – Collecting SS and Income Taxes; early retirement and working
Dear Rusty: My husband just starting collecting Social Security at his full retirement age. If he wants a part time job how much money does he have to stay under not to mess up his SS income? Someone told us he can make as much as he wants because they changed the law but my sister can only make up to a certain amount so we are concerned.
I am taking an early retirement, I will be 62. Do the same rules count for me as to how much money I can make after drawing SS? Signed: Collecting but Still Working
Dear Collecting: Since your husband has reached his full retirement age, he is no longer subject to Social Security’s earned income limit; he can earn has much as he wants and it will not affect his Social Security benefit payments. However, it may affect how much of his total Social Security income is taxable when you file your Federal Income Tax. Assuming your income tax filing status is “Married Filing Jointly”, if your combined Adjusted Gross Income (including 50% of his annual Social Security benefit) is less than $32,000, none of his Social Security income is taxable. If, however, your AGI is between $32,000 and $44,000, 50% of his total Social Security benefit is taxable as income; and if your AGI is more than $44,000, up to 85% of his total benefit becomes taxable income. I suggest you speak with a Tax Advisor about how additional income from part time employment, when added to your other income sources (pensions, etc.), may affect the tax liability of your husband’s Social Security benefits.
Now as for you taking early retirement, note first that if you start your Social Security benefits at age 62 you will only receive about 74% of what you would otherwise get at your full retirement age (FRA), and this reduction will be permanent. Also, when you file for benefits you will be “deemed” as filing for both your own benefit and any spousal benefit you may be entitled to from your husband’s work record. But if you do retire early, the rules for working while you’re collecting Social Security are different. Until you reach your full retirement age of 66 and 2 months you will be subject to an annual earned income limit, which for 2017 is $16,920 (this amount is subject to change each year). If you earn over this amount for the year, Social Security will take back $1 for every $2 you earn over the limit by withholding future benefit payments. The earnings limit and penalty for exceeding it become more generous during the year in which you reach your full retirement age: the earnings limit goes up to $44,880 (2017 amount) and the penalty is less – $1 for every $3 over the limit. And of course, like your husband, once you reach your full retirement age you can earn as much as you want without penalty, but you should always take into account the effect of working on the tax liability of your Social Security income. I’m not suggesting you shouldn’t work, only that you should understand the affect working has upon your income taxes. Just like at work, you can choose to have income taxes withheld from your Social Security benefits, if appropriate.