There is a provision of Social Security law that is rather archaically called the “annual earnings test.” It is sometimes also called the “retirement test.” (More about where those terms come from in a minute.) But I call it the Social Security earnings penalty. And I’ve never liked this law. Before I explain why, let me clarify what I am talking about.
The rules say that if you are a Social Security beneficiary who is under full retirement age and still working, $1 must be deducted from your Social Security checks for every $2 you earn over $18,240 annually. A more lenient penalty applies in the year you reach full retirement age. The earnings threshold is $48,600 with a 3-for-1 withholding scheme. In other words, $1 is withheld from your benefits for every $3 you make over $48,600. And once you reach your full retirement age, the penalties go away. Starting with that month, you could make $1 million a day and still be eligible for Social Security checks. ...
To illustrate, I’ll use my own mother as an example.
Back in the 1970s, she was getting Social Security widows benefits, but she was working part time to supplement her rather meager benefits. She would start out the year reporting her anticipated earnings to her local Social Security office. They would adjust her benefits accordingly, applying the $1 deduction for every $2 earned. Inevitably, as the year went on, she’d work a little overtime or pick up a couple of extra hours of work. She would dutifully report her change in anticipated earnings to the Social Security people, and further adjustments would be made to her monthly widows checks. More often than not, she’d be charged with an overpayment and be asked to return some of her Social Security funds.
Then maybe she’d be laid off for a time, and her earnings would go down; she’d file yet another report with the SSA, and there would be more adjustments to her benefits. Sometimes, the SSA owed her some extra money.
Eventually, once the year was over and she got her W-2 form, she would make a final report of her earnings to the Social Security office, leading to yet another benefit adjustment. And on top of that, they would ask for an estimate of her anticipated earnings for the new year; more adjustments would be made, and the whole vicious cycle would start over again.
My mom used to complain bitterly to me about this, saying, “Can’t you do anything to help me?” I always had to tell her that there was (and still is) a law that says SSA employees cannot work on any cases involving their relatives.
Still, when people griped to me about how they couldn’t understand the constant tinkering with their Social Security benefit amount due to the earnings penalty, I used to tell them, “If I can’t keep my own mother’s records straight, how do you expect me to help you?!” ..
So, because the earnings penalty isn’t going away any time soon, let me share with you some tips for dealing with it. Of course, you could play by the rules and religiously report your earnings to the SSA — and then get stuck in the vicious cycle of earnings variances and benefit adjustments that plagued my mother. ...
Or you could bend the rules a bit. You could tell the SSA that you plan to make less than whatever the earnings threshold happens to be. So, for example, for this year, you would say you expect to make less than $18,240, even if you think you will make more than that. What that means is that the SSA won’t withhold any of your benefits. But you must remember that you will have to pay back some of that money once the year is over with. At the beginning of 2021, you will tell the SSA how much money you made in 2020, and they will calculate how much money you have to pay back.
If you don’t like the idea of having to owe the government any money, you could go the other way around. For example, you could tell the SSA you plan to make $100,000 in 2020, even though you actually expect to make much less. In this scenario, the SSA won’t send you any Social Security checks. Then in early 2021, you would tell the SSA how much money you actually made in 2020, and they will send you a check to cover the benefits you are due.
I know some of my former SSA colleagues will be absolutely aghast at these suggestions. They will say that I am coaching people to lie to the government. But c’mon, chill out! Both scenarios I presented require the claimant to eventually settle the books with the SSA. ...
7 comments:
Work under the table. How many contractors do it? Shouldn't be an AET 60 on. Needs eliminated. Same with convulated dib work with TWP and SGA. Many CRs couldn't get either right. When you need an AWIC position full time you know something is wrong.
I was always amused by folks who retired, then went back to work and were offended that their earnings offset their "retirement". You'd explain that retirement means leaving the workforce, at least for SSA, and the retirement test was set to keep SSA from being paid to non-retirees. Think about it - if you are working, are you actually retired? (Yeah, I'm that old, I know the law has changed.) But back in the day, there was an emphasis on retired - not working. Working, not retired. Simpler times.
All the numbers kind of drive me crazy. It's not that I do not believe in the adjustment. Just how did they come up with $1 adjustment for every $2 earned? For some reason, not knowing how they come up with these figures drives me crazy. The same with the Medicare waiting rule of 2 years for SSD. Why 2 years? It just seems arbitrary.
I don't think it matters what people do. If benefits are withheld, then the person will receive higher benefits later, so their total expected benefits are unaffected. The rule is just to prevent people from hurting themselves by taking money when they don't need it and possibly not having enough later.
I don't think there's anything wrong with people collecting the Social Security benefits they're entitled to even if they are working. I am a state employee and there are rules about working for the state after retiring, to keep people from working and collecting a pension at the same time. But what's wrong with that? If they've earned the pension, and they're earning the paycheck by working, who does it hurt? Somehow some people think that this is ripping the state off. It's no different than if they went to work for someone else while collecting a state pension.
2:11 PM A lot of things thatbappear arbitrary are the results of compromises. Some members of Congress probably wanted no penalty, some wanted more.. If it doesn't make sense, it was probably a compromise.
I supposed you are for paying disability to people who aren't disabled and perhaps survivor benefits to those who aren't survivors. SSA is social insurance to replace LOST income. It's not a 401k, nor a pension.
Anon 1:21 Not sure if it only to replaced "LOST" income. I look at Social Security as a forced retirement and disability program. It's main goal is to save people from themselves forcing them to pay into a program with their payroll taxes. So presumably a worker paid into the program, they should get the money out. A 401K is usually voluntary. Employees working a job that pays into Social Security must contribute.
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