7 FACTS ABOUT SOCIAL SECURITY BENEFITS

I get a lot of questions from people that are considering drawing Social Security benefits. The IRS recently issued the memorandum below discussing some of the facts about Social Security. It is a pretty good summary. I thought you might be interested.

Seven Facts About Social Security Benefits

If you received Social Security benefits in 2009, you need to know whether or not these benefits are taxable. Here are seven facts the Internal Revenue Service wants you to know about Social Security benefits so you can determine whether or not they are taxable to you.

1. How much – if any – of your Social Security benefits are taxable depends on your total income and marital status.

2. Generally, if Social Security benefits were your only income for 2009, your benefits are not taxable and you probably do not need to file a federal income tax return.

3. If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status.

4. Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet.

5. You can do the following quick computation to determine whether some of your benefits may be taxable:

• First, add one-half of the total Social Security benefits you received to all your other income, including any tax exempt interest and other exclusions from income.
• Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.

6. The 2009 base amounts are:

• $32,000 for married couples filing jointly.
• $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year.
• $0 for married persons filing separately who lived together during the year.

7. For additional information on the taxability of Social Security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Publication 915 is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

• Publication 915, Social Security and Equivalent Railroad Retirement Benefits (994.0KB)

SOCIAL SECURITY HITS POTHOLE

For the first time since the 1980s, Social Security will have to pay out more in benefits than it will take in. The program is projected to run a $10 billion deficit in 2010 and a $9 billion deficit in 2011, but the funding gap will not affect payments to beneficiaries because the program has run a surplus in the past.

Increases in benefit applications during the recession have caused the deficits: Applications for retirement benefits have jumped 23% from the previous year, with disability claims up about 20%.

WHEN SHOULD I START TAKING SOCIAL SECURITY BENEFITS?

Do you think I should start drawing Social Security at age 62?

Bill

Bill, deciding when to start drawing Social Security has too many variables for me to give you a correct answer. There is a very good article addressing this issue in the AARP website
http://bulletin.aarp.org/yourmoney/socialsecurity/articles/when_to_collect_social_security.html

The article directs you to the Social Security Calculator that is located at http://www.ssa.gov/planners/calculators.htm

Remember if you start taking Social Security early you can only have earned income of $14,160 in 2009 or you will have to pay back $1 for every $2 over this amount.

Your accountant or the Social Security Administration should be able to provide you with more assistance on this matter.

Larry Kopsa CPA

SOCIAL SECURITY MONEY RUNNING OUT FASTER THAN EXPECTED

More news on the Social Security Trust Fund. The loss of 5.7 million jobs since the beginning of the recession, and the payroll taxes that went with them, have taken a toll on funding for Social Security and Medicare, the programs' trustees reported. The Social Security trust fund is on pace to run out of money four years earlier than expected, in 2037, while Medicare is on pace to become insolvent two years earlier than anticipated, in 2017, the trustees said.

The New York Times (5/12), USA TODAY/The Oval blog (5/12)

MAYBE YOU WON'T GET SOCIAL SECURITY BENEFITS AFTER ALL

When I talk to clients about social security tax, I always hear the same response. “I probably won’t get social security benefits anyway.” Now, that is becoming reality.

According to an article in the Washington Post, President Obama has hinted that maybe everyone will not receive social security benefits. As he calls it, “entitlement reform.” That means hundreds of billions of cuts in social security, Medicare and Medicaid. The social security fix will be “relatively easy”, combining a means test that will scale back benefits for the wealthy with an increase in the retirement age.

What this means is, if you have been prudent and have saved money in your pension plan or in outside savings, don’t plan on receiving full social security benefits. The government has to pay for the one trillion dollar deficits somehow.

Larry Kopsa CPA

WHEN SHOULD I START TAKING SOCIAL SECURITY BENEFITS?

Larry, do you think I should start drawing Social Security at age 62?

Bill

Bill, deciding when to start drawing Social Security has too many variables for me to give you a correct answer. There is a very good article addressing this issue in the AARP website: http://bulletin.aarp.org/yourmoney/socialsecurity/articles/when_to_collect_social_security.html.
The article directs you to the Social Security Calculator that is located at: http://www.ssa.gov/planners/calculators.htm.

Remember, if you start taking Social Security early you can only have earned income of $14,160 in 2009, or you will have to pay back $1 for every $2 over this amount.

Your accountant or the Social Security Administration should be able to provide you with more assistance on this matter.

Larry Kopsa CPA

QUESTION ON SOCIAL SECURITY BENEFITS

Larry, I saw an article that said a couple can increase their Social Security benefits if the wife applies individually at age 62 and the husband at age 66. Is this correct? Lorinda

Lorinda, It really depends. Some couples benefit by having the higher-earning spouse delay application of benefits. This is due to the interplay between the reduction of benefits for early retirement and the full benefits available to a surviving spouse upon the death of a higher-earning spouse. But several other factors should be considered, including the respective ages of the spouses and the amounts involved.

We do have programs available to determine if this is in your best interest. Let us know if you are interested in us running a calculation for you and we will tell you what we need. We are always up front about costs. The cost to do this calculation and then meet with you in person or via phone and computer is $275.00.

Remember, everyone's situation is different. If you would like to research this yourself you might check out the Social Security website, http://www.ssa.gov/.

Larry Kopsa CPA