A Social Security benefit is the amount the Social Security Administration (SSA) calculates that you are eligible to receive each month, based on earnings history, claiming age and the type of benefit appropriate for you, says a recent article “8 Things That Can Lower Your Monthly Social Security Payments” from AARP. The payment is the actual amount of money arriving in your bank accounts on a monthly basis. There could be a big gap between the two. Here is why.
Medicare Premiums matter. If you are collecting Social Security and also a Medicare recipient, premiums for Part B, the part of Medicare paying for doctor visits and outpatient treatments are automatically deducted from monthly benefits.
For most people, this is the standard Part B premium, although beneficiaries with higher incomes are charged up to several hundred dollars a month more for Part B. This begins at $97,000 a year for an individual and $194,000 for a couple filing jointly.
Those who pay the standard rate are covered by a provision of Social Security law called “hold harmless.” This prevents your monthly payments from going down year to year due to an increase in Part B premiums. This provision is not appliable to anyone in their first year of Medicare coverage or anyone paying a higher premium rate.
Still working? If you claim Social Security before Full Retirement Age (FRA) and are continuing to work, benefits will be smaller. In the years before FRA, $1 is withheld from monthly benefits for every $2 earned over an annually set cap. In 2022, the cap is $19,560. If you earn $30,000 from a part-time job, the difference between the earnings limit is $10,444, so $5,440—half that amount—will be deducted from benefits for the year.
However, in the calendar year a taxpayer reaches FRA, the limit goes up and withholding goes down. When the taxpayer actually reaches FRA, the earnings test ends and no matter how much is earned, there’s no withholding. This is also when the SSA recalculates the benefit to a higher amount, in a sense repaying for the pre-FRA withholding.
Federal income taxes are still due for those with incomes above $25,000 (single) or $32,000 (married, filing joint) on between 50—85% of Social Security income. There is an option to have federal taxes withheld from monthly benefits and at what rate. Some states tax Social Security income. However, there’s no means of withholding state tax payments from monthly benefits.
Government pensions. The Windfall Elimination Provision (WEP) reduces retirement or disability benefits for people who collect a pension from a job where they did not pay into Social Security and also qualify for Social Security. This mainly refers to state or local government agencies not covered by Social Security. It can reduce a monthly benefit by up to one half of the pension payment.
A similar rule, the Government Pension Offset (GPO) applies to people who receive Social Security spousal or survivor benefits and non-covered government pensions. Military retirement pay does not impact Social Security benefits.
Debts cannot be paid through Social Security. Taxpayer’s Social Security benefits may not be garnished to pay commercial dept or seized in bankruptcy. However, the federal government can withhold benefits for government managed debt, including back taxes, non-tax debt for federal agencies and court ordered payments, such as alimony, child support or restitution to crime victims.
Got overpayment? If a taxpayer receives more than they were supposed to get in previous benefit payments, SSA may withhold some or all benefits going forward to recoup the overpayment. This most often occurs with Supplemental Security Income (SSI).
Family Maximum: There is a limit to how much a family unit can receive from Social Security. Let’s say a taxpayer is getting retirement benefits, and their children and spouse all qualify for benefits. A formula is used to calculate the family max, which generally is between 150-180 percent of the basic benefit. If all the family’s benefits added together exceed that number, the spousal and offspring benefits will be reduced in equal measure. The maximum only affects benefits paid to spouses and children, not on benefits paid to the primary earner.
Workers’ Compensation. Receiving SSDI (Social Security Disability Insurance) and Worker’s Compensation? When combined, these two benefits cannot amount to more than 80% of what Social Security determines to have been your average earnings before becoming disabled. This is a federal law. If applicable, one or the other will be reduced to under the cap.
If you have questions about social security payments, you should speak with your financial advisor to determine any strategies surrounding your social security benefits.
Reference: AARP (Oct. 5, 2022) “8 Things That Can Lower Your Monthly Social Security Payments”