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How working affects your Social Security

The Transamerica Center for Retirement Studies reports almost half of the baby boomers plan to keep working past age 70 or never retire. However, if you are working while on Social Security, it is crucial to understand the earnings test limit. If not, your benefits could be reduced or withheld. Katie Brockman explains what you need to know about how working will affect your Social Security benefits. Read Ms. Brockman’s article here…

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Comments On This Topic

  1. Your article on Social Security was well done. But there is an area about SS that is never mentioned or discussed. And it is truely unfair, perhaps criminal.
    When an individual files for SS, it is based on that individuals work history, over many years (quarters), and then the IRS determines what your monthly amount will be. All based on a single indivudual!
    But, when it comes time to tax that person’s SS, now the IRS adds the spouse income, to put the SS recipient in a higher tax bracket, on purpose, to generate additional taxes.
    The spouses income was Never considered or combined with the individuals income when determining SS benefits.
    You can see that the taxation process used for SS is unfair, unjust, and never discussed.

    • Steve:

      Thank you for your comment. The general issue of taxing Social Security benefits has been a general concern for AMAC for some time, and has resulted in our AMAC Action subsidiary formally supporting the Senior Citizens Tax Elimination Act, H.R. 3206. This act would amend the Internal Revenue Code of 1986 to remove the inclusion of Social Security benefits in an individual’s gross income. We have also gone on record with an alternate recommendation, in the event this bill is not successful, to update the thresholds at which this taxation occurs to reflect 21st century economics. As you may know, the current thresholds were put into place decades ago and never indexed for inflation, resulting in more than half of Social Security beneficiaries now affected by the additional tax.

      Whether either of these suggestions make it into law depends on Congress, and it’s important to note that this piece of Social Security revenue last year produced $37.6 billion in income for the program. Given Social Security’s precarious financial position, the need for an offset to replace the lost revenue will likely hamper any change to this taxation ruling. Rest assured that the AMAC organization will continue to pursue it.

      On another matter, I need to explain that the IRS has really nothing to do with how an individual’s Social Security benefit is calculated. In summary, the IRS forwards payroll information to Social Security Administration annually, and when someone files for benefits, all of these income records are first indexed (present valued) to reflect inflation. After that, SSA selects the highest 35 years of indexed earnings, adds them together, and divides the sum by 420 to arrive at the average indexed monthly earnings (AIME) for that individual. AIME is then applied to a formula that determines the actual benefit, called your primary insurance amount (PIA). This PIA is the basic benefit the individual is eligible for at their full retirement age, and this amount is what the IRS sees when the individual files a tax return.

      From an IRS perspective, then, it’s really no different than any other type of income that gets added to a joint tax return. The Social Security benefit at that point is each individual’s contribution to the total taxable income for IRS purpose.

      I hope this addresses your concern, and I want to thank you again for taking the time to contact us. We sincerely appreciate hearing from our readers!

      Gerry Hafer, Social Security Advisor
      AMAC Foundation

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