Dont Forget Social Security Benefits May Be Taxable
Tax Tip 2020-76, June 25, 2020
Taxpayers receiving Social Security benefits may have to pay federal income tax on a portion of those benefits.
Social Security benefits include monthly retirement, survivor and disability benefits. They don’t include supplemental security income payments, which aren’t taxable.
The portion of benefits that are taxable depends on the taxpayer’s income and filing status.
Claiming Social Security Benefits At The Right Time Means More Money In Your Pocket Here’s A Guide To Everything From Knowing Your Full Retirement Age To Taking Social Security Spousal Benefits
For many Americans, Social Security benefits are the bedrock of retirement income so maximizing this stream of income is critical.
The rules for claiming Social Security benefits can be complex, but this guide will help you successfully navigate the details. Educating yourself can ensure that you claim the maximum amount to which you are entitled.
Here are 12 essential details you need to know.
How Do I Calculate My 36% Raise On My Social Security Payment In 2012
It was recently announced that anyone receiving Social Security or SSI payments will get a 3.6% raise in 2012. The big question everyone wants to know is exactly how much extra money they will be receiving next year? This article will show you how to calculate your Social Security raise as well as calculate the new total payment including the raise.
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How To Calculate Social Security Benefits In Excel
If you are in your late 50s and approaching retirement, you can create a useful model of your future benefits. It works best to do this in a Microsoft Excel spreadsheet, as follows:
- Using a recent Social Security statement, list in spreadsheet column A your taxable Social Security earnings year by year.
- List in column B the most recently published NAWI adjustment factors as published by the SSA.
- Multiply columns A and B and output the result to column C.
- Identify in column D the 35 highest values in column C. Add these together and divide the sum by 420 . This will approximate your AIME.
- Use the most recently published bend points to convert your AIME into a PIA.
You also can fill in hypothetical values for estimated taxable Social Security earnings in future years until you plan to stop working. To be conservative, use a NAWI adjustment factor of 1.0000 in column B for all future years.
A financial advisor who fully understands this process can help verify your calculations, advise you on when to start Social Security benefits, and estimate the future benefits you can expect to receive.
Strategy For Divorced Spouses
If you have been divorced for at least two years, you can apply for spousal benefits if your marriage lasted 10 or more years. If, on the other hand, you are still married and considering a divorce, and are near retirement age, try to apply for spousal benefits before your divorce is final. If you have been married and divorced multiple times, you can choose to receive whichever spousal benefit is highest. Saving your ex-spouses Social Security numbers and dates of birth will make the enrollment process easier.
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Can Your Pia Change After You Reach Age 62
There are two things that affect your PIA after you reach age 62:
You may get the wrong answer when running your own calculations on when to begin Social Security if you simply take the numbers off your statement and do not properly apply inflation adjustments.
Are Social Security Wages The Same As Gross Income
Social Security wages are not the same as gross income. While the amount of Social Security wages and gross income are oftenidentical, they just as easily may not be.
Gross income is the total of all compensation from which the amount of taxes and other withholdings are calculated. Social Security wages are based on the gross income and have specific inclusions and exclusions .
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What Does Aarps Social Security Benefits Calculator Do
The calculator provides an estimate of your Social Security benefits, based on your earnings history and age. Our tool also helps you see what percentage of daily expenses your payments can cover, and how you can increase your benefits by waiting to collect. It can also tell you how your retirement earnings will be affected if you keep working after you claim your Social Security benefit.
How Do You Calculate Social Security
Answer itSocial SecuritySocial Security
In respect to this, what is the maximum Social Security benefit for 2018?
How do you find out how much Social Security you will receive?
Remember, if you receive benefits or have Medicare, you can use your my Social Security online account to:
What is the Social Security amount for 2017?
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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.
Who Is Subject To Social Security Wages
The IRS says employees who are subject to Social Security wages are any employee in the United States, regardless of the citizenship or residence of either the employee or employer.
However, for employees who work in another country, Totalization Agreements coordinate Social Security taxation and coverage with some countries to eliminate dual taxation and coverage.
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How Social Security Calculates Ssi Disability Benefits
The process for calculating monthly benefit payments for the SSI program is straightforward. Each year, SSI establishes monthly maximum Federal payments. Those amounts increase every year with Social Securitys annual cost-of-living adjustments.
In 2022, the monthly maximum Federal amounts for the SSI program are $841 for an eligible individual, $1,261 for an eligible individual with an eligible spouse and $421 for an essential person. Click here to view the 2022 Social Security Disability benefits pay chart.
But theres more to the equation than just finding your monthly maximum payment category. Since SSI is needs-based, once an eligible claimant determines their max payment, they also need to consider any additional countable income they receive that SSA may subtract against their monthly maximum payment.
The SSA defines countable income as anything you receive during a calendar month and can use to meet your needs for food or shelter. Countable income may be in cash or in-kind which means not in cash akin to someone offering you food or a free place to stay. The SSA also maintains a list of income exclusions that are not subtracted from the SSI monthly payment.
You can see the simple calculation for monthly SSI benefits illustrated below.
Maximum Social Security Benefits You Can Get
The maximum monthly Social Security benefit available to someone retiring in 2021 is $3,895, which assumes that:
- They worked 35 years or more
- In their 35 top-earning years, their income met or exceeded the SSA’s maximum taxable amount, so that they paid the largest Social Security tax amount possible for each of those years
- They are retiring at age 70, which entitles them to the maximum delayed retirement credit
For comparison, the table below lists the monthly benefits for workers who plan to retire in 2021 whose earnings met or exceeded the SSA maximum-taxable limit every year of their working lives, from age 22. This situation is far from typical, but it shows the impact of retirement age on Social Security benefits, isolated from other factors.
|Maximum Social Security Benefit for Workers Retiring in 2021|
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Four Ways Benefits Can Be Increased Or Decreased
There are four ways the starting benefit can be permanently increased or reduced from the PIA calculated at age 62:
- Starting benefits earlyBenefits may begin as soon as age 62, but they are permanently reduced for every month between the onset of benefits and FRA.
- Delaying benefits beyond full retirement ageDelayed retirement credits can permanently increase benefits, and they are awarded for every month between FRA and a later onset of benefits.
- Starting early and continuing to workIf you start benefits before your FRA and keep working, the SSA may deduct the part of your benefits that exceeds a threshold. However, any such deductions are not permanent. When you reach your FRA, the SSA recalculates your benefits and credits back any deductions.
- Continuing to work, periodEven if you dont start benefits early, you can increase your benefits by continuing to work up to any age. Any year in which your indexed earnings are higher than one of your 35 previous highest years will boost your benefits. However, after age 60, you will not receive wage indexing, and after age 62, you will not receive bend point inflation indexing.
All four points are related to your starting Social Security benefits. Keep in mind that when your benefits start, the COLA will increase them annually. If you start benefits at age 66, your PIA automatically increases with the applicable COLAs from the years in which you turn 63 through 66.
How To Receive Federal Benefits
To begin receiving your federal benefits, like Social Security or veterans benefits, you must sign up for electronic payments with direct deposit.
If You Have a Bank or Credit Union Account:
- Call the Go Direct Helpline at .
If You Don’t have a Bank or Credit Union Account:
- Direct Express debit card – a pre-paid debit card. Get help by calling the Go Direct Helpline at .
Make Changes to an Existing Direct Deposit Account:
Learn how to make changes to an existing direct deposit account. You also may contact the federal agency that pays your benefit for help with your enrollment.
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Is Social Security Taxable
Yes, Social Security may be taxable. But the portion of benefits that are taxed depends on a person’s filing status and provisional income.
There are two steps in determining whether your Social Security benefits are taxable and at what rate:
Provisional income for a single, head of household, qualifying widow, or married but separate filer
Provisional income for a married, joint filer
Amount of Social Security benefit taxed
More than $44,000
Up to 85% of Social Security benefit taxed at filer’s marginal tax rate
Note: Married couples who file taxes separately but lived together at any time during the tax year are taxed on up to 85% of their Social Security benefits regardless of their income level.
Coordinating The Value Of Social Security With Other Retirement Assets
Notably, the factors that drive the value of Social Security also have an impact on the other assets in the retirement portfolio. As shown earlier, at higher interest rates, the asset value of Social Security is actually lower however, when returns are higher, the value of the rest of the retirement portfolio may be greater! In other words, Social Security provides a unique form of asset to hedge against the rest of the portfolio, because its an asset whose value increases as returns decrease!
Similarly, while the value of Social Security has been calculated here based on average life expectancy and average inflation assumptions, the reality is that the value of Social Security will increase further for those who live beyond life expectancy, and will rise substantially if inflation turns out to be higher . For instance, if you live to age 95 and inflation turns out to be 5% instead of 3%, the value of an average Social Security benefit is actually a whopping $717,000 !
So what do you think? Have you ever included the present value of Social Security benefits as an asset on the clients balance sheet? Would doing so make it easier to have the conversation about when/whether its best to delay Social Security benefits? Does this provide you with a different perspective on how to think about the value of Social Security?
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How Are Disability Benefits Calculated
January 27, 2022 by Andrew Price
Before applying for Social Security Disability, many claimants question how much they will receive monthly and how disability benefits are calculated. In this post, well walk you through the calculations the Social Security Administration uses for their Supplemental Security Income and Social Security Disability Insurance programs.
How Are Social Security Spousal Benefits Calculated
To understand Social Security benefit calculations, you first need to understand one piece of jargon: primary insurance amount . A persons primary insurance amount is the amount of their monthly retirement benefit, if they file for that benefit exactly at their full retirement age.
A Social Security spousal benefit is calculated as 50% of the other spouses PIA. Note that the age at which the other spouse files for Social Security benefits doesnt affect this calculation.
Example: Jane files for her retirement benefit at age 63 and is therefore receiving a retirement benefit that is smaller than her PIA. Janes husband Bob files for a benefit as Janes spouse. Bobs spousal benefit will initially be calculated as 50% of Janes PIA.
If Jane had filed for retirement benefits after her full retirement age , Bobs benefit as Janes spouse would still be calculated as 50% of Janes PIA. Again, the age at which Jane files for retirement benefits does not affect the amount that Bob can receive as Janes spouse.
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How Is Social Security Calculated
There is a three-step process used to calculate the amount of Social Security benefits you will receive.
Step 1: Use your earnings history to calculate your Average Indexed Monthly Earnings .Step 2: Use your AIME to calculate your primary insurance amount .Step 3: Use your PIA, and adjust it for the age when you will begin receiving benefits.
You can use a copy of your Social Security statement that provides your earnings history to plug your own numbers into the formulas below.
Earn Ssa Work Credits In Some Countries
You may not have enough credits from your work in the United States to qualify for retirement benefits. But, you may be able to count your work credits from another country. The SSA has agreements with 24 countries. If you earned credits in one of those countries, they can help you qualify for U.S. benefits.
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When Should I Start Collecting Social Security
Ultimately, the decision of when to begin collecting Social Security is one you have to make. It depends on your age, your health status, how much you spend and how much you have saved. Its generally best to start collecting as late as you can, because you get a larger monthly payment, which is adjusted for inflation each year.
Consider a retiree who was born in 1950 and averaged $50,000 a year in salary. If she has $3,000 a month in expenses, her Social Security check would cover 48 percent of her expenses if she started Social Security at age 62. If she waited till age 70, her check would cover 84 percent of her expenses. Every year she delays retirement, her Social Security payout which is adjusted annually for inflation rises by about $1,635.
Traditionally, the retirement system in the U.S. has been a three-legged stool: Social Security, savings and pensions. Social Security was never intended to be the sole source of income for retirement. Increasingly, however, employers have been moving away from their employer-sponsored pension plans in favor of tax-deferred retirement savings accounts, such as 401 plans.
If You’re Receiving Other Retirement Benefits
The calculation gets a bit more complicated if you are eligible to receive benefits from a government pension or foreign employer that is not covered by Social Security. In that case, you may still be eligible, but the amount will be reduced.
For example, if you have a government pension for which Social Security taxes are not withheld, the amount of your spousal benefit is reduced by two-thirds of the amount of your pension. This is known as a government pension offset.
For example, suppose you are eligible to receive $800 in Social Security spousal benefits and you also get $300 from a government pension each month. Your Social Security payment is reduced by two-thirds of $300, or $200, making your total benefit amount from all sources $900 per month + $300).
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