Doing some planning since I just retired. I will be 62 next July and eligible for soc. sec. benefits. I receive a statement from them every year indicating what I have earned and my benfits. I'm trying to decide if I should apply or wait till I reach full benfit age of 66. Quick question, will my benefit be subject to federal and state taxes ?
Dick
>> Quick question, will my benefit be subject to federal and state taxes ? <<
Quick Answer: Maybe !
Slightly longer answer: Federal taxability depends on something called Modified Adjusted Gross Income (MAGI) which basically looks at how your SS benefit interacts with other sources of income such as a pension, 401K, interest, dividends and capital gains.
State taxability depends, first and foremost, upon your state of residence...which you did not state. Even if you had, we might not have a regular forum member familiar with the taxes of that state.
Since you are facing a strategic tax related question involving when to start claiming your SS Retirement benefits, and the tax consequences thereof -- I will suggest that you consider consulting a qualified tax professional in, or knowlegeable about, the laws of the state where you intend to make your retirement residence.
A little upfront investment in getting good answers to the issues might save you many times the fee involved in terms of making an informed decision, even if you do not enter into an ongoing tax preparation relationship.
Best regards, 4merCL
Between the ages of 62 and reaching full retirement age, if you are still working, some of your social security benefits may be taken away if your earned income is more than the minimum stated by Social Security. See the SS website for more information on that.
As far as the taxability of your social security, up to 85% of it could be taxable depending on your modifed adjusted gross income (not including the SS) ... and those amounts depend on if you're single ($25,000), married filing jointly ($32,000), or married filing separately and living with your spouse (no allowance for income is made in this case). Tehre's a worksheet in the tax form instruction booklet (and available at the IRS website) to help you figure this out.
California excludes Social Security benefits from tax; your state may vary, so you'll have to look it up or ask a local tax person.
Gretchen
Gretchen in Msg. 4 >> Between the ages of 62 and reaching full retirement age, if you are still working, some of your social security benefits may be taken away if your earned income is more than the minimum stated by Social Security. See the SS website for more information on that. <<
Keep in mind also that, whether you work or not between age 62 and full retirement age, the election to take "early benefits" will result in an actuarial reduction (of up to 25%, IIRC, of your base -- full retirement benefit). This will have the same effect as an upfront withholding tax (except that it will NOT depend on your other income, and it will NOT allow you to claim the amount as a "tax withheld" credit on your Form 1040.
Dick --
You may wish to use the link that follows as an entry to the IRS website, and browse around there for more info and to request relevant IRS Publications:
Regretably, I must take exception to Gretchen's indication that the MAGI used in determining taxablity of your SS benefits is dependent only on your non-SS income.
In actuality, the MAGI includes a (sliding scale, I believe) fraction of your SS benefits in addition to your income from other sources.
>> Like so many things, "it depends." I just happened to have been looking into this, though I'm still some way from retirement. <<
Hi, Bev --
I seem to recall your recent post that you had taken French citizenship (?). Does this amount to dual citizenship for you...or did the French require you to "renounce and abjure" any allegiance to the USA?
What have your learned about Social Security Retirement benefits for expatriate claimants?
WOW, I had no idea it would be such a complicated question. Surely it can't be all that involved. I have been to a tax consultant, bad decision, guy was a jerk. So, I tried a different one, he was worse. It has got to be a simple yes or no answer, it's either taxable or it's not. I'll just place a call to the IRS and see what they say. I'll let you all know, you sound just as confused as me.
I suspect IRS will also give you a complicated answer; you might first try talking with the folks at Social Security, who are very responsive.
If you think THIS is complicated, wait until you have to figure out what insurance you're going to get besides basic Medicare
>> WOW, I had no idea it would be such a complicated question. <<
Politicians and beaurocrats like "complicated". If you don't understand it, you are less likely to complain and hold them accountable. If you can't understand it without someone to explain it. it makes for "job security" in the civil service.
BTW, you must have at least been vaguely aware of the monstrosity called Medicare Part D prescription insurance. While details may vary from one private insurance carrier to another..the cleverist sleight of hand is the so-called "donut hole" or coverage gap.
Suppose that you pay your premiums and the insurer/co-pays breaks down at the year thru July to something like $1900 by the insurer and $500 that you have paid in copays. That $2400 total drug costs brings you to the edge of the donut hole and you will be in that coverage gap until your "out-of-pocket" drug expense reaches, IIRC, $3600. During that gap you have no insurance and must pay the full prescription price yourself.
Now the naive and simple minded person might believe that is a $1200 coverage gap between $2400 and $3600...but the ever so clever and "complicated-loving" pols have a surprise for you. The coverage gap here is actually $3100, because even tho both the insurer payments and your copays got you into the gap, it is only your own costs ($500 + $3100 in the gap) that will get you out.
Your situation with taxable/non-taxable SS benefits is similar in the sense that the pols have come up with a formula that obscures any simple yes/no taxability question and instead makes it a result of the interaction between the SS benefits that you want an answer to, and your assorted other income sources.
its not as complex as some make it out to be. the question isn't is it taxable. let the question be "does it go on the tax return" (yes i know if its not enuf it doesnt, but lets stick to the concept). generally speaking it DOES go on the return, just like if you earned $10 at the bank. The point is, if your only income was $10 you probably dont have a tax liability. If you earned $80000, and had $10 in interest then maybe you DO have a tax liability. Same $10 in interest, different results,
I won't be taking my SS until my full retirement age (66). However my wife is going to take hers in 2008 (January) when she turns 62. She is fully retired and I am fully employed. How will her SS be treated for income tax purposes?
For tax purposes, pretty much the same as your SS will be treated, Mike. Since you file jointly and you will still be working, if your joint income is over a certain amount (I believe that is $32,000), some of her SS will be taxable. The worksheet in the instruction booklet will help you figure this out.
If you were to file separately to avoid this, guess again! For MFS, any amount of other income will trigger taxability of the SS. And, since you live together in a community property state, half YOUR income would go on HER tax return, and half HER income would go on YOUR tax return... so the taxable SS will be inevitable.
Since posting this msg. I have done some research and asked some questions of friends and business associates.
>>What is the next administration going to do about SS? << Clinton will more than likely be the next pres. and she has already indicated a total restructuring of the system so as to include those who started contributing late, i.e. immigrants and workers without soc.sec. numbers. I just don't know how it will affect folks like myself. I'm just glad my retirement is not based on soc.sec. I will do just fine without it, for me it's just some extra spending cash.
Some decades ago, my Mom faced that question. The rules were a bit different then, and Full Retirement Age for all was 65.
Two considerations made my recommendation that she collect early at 62.
First, she still had a minor child (my youngest brother) for whom she could collect an additional benefit for a couple of years before he "aged out."
Second, in five or six years, when Dad retired at Full Retirement Age, she would receive a supplemental benefit based on his account.
I don't believe that she has experienced any material want that has been unfulfilled because of that "early benefit" decision.
Another quick answer:
If you need the money now more than you're likely to need the money about 12 years from now, or you think you'll die relatively young, then you should apply sooner rather than later.
You can probably find a calculator that'll show you the "break even" age. That is "if you take your lower payments now, what age would you have to live to until you actually will start having your accumulated total of benefits be LOWER than if you'd waited to full retirement age.
(Keep in mind that that break even age assumes you did not take any of the "early" benefits and earn any interest on them or use them for anything that produced more income for you.)
My personal take tends to be along the lines of "a bird in the hand is worth two in the bush."
Alex
>>My personal take tends to be along the lines of "a bird in the hand is worth two in the bush."<<
I totally agree, especially since a democrat will more than likely be in the white house next year.
