Advanced Underwriting Consultants

Ask the Experts – October 14

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question:  My client is 63 and has begun receiving his Social Security benefit of about $1,600 per month. The problem is that he still works and earns about $45,000 per year. When, and by how much, will his benefits be reduced?

Answer:  Generally, if a retiree has reached her full retirement age (FRA), then his SS benefits will not be affected by his earnings. However, his benefits will be reduced if his earnings exceed certain limits before reaching FRA.

If a retiree has not yet reached FRA, he can earn only $15,120 in gross wages (i.e. pre-taxed income) in 2013 and not lose any benefits. His benefits will be reduced by $1 for every $2 earned above this amount.

The retiree is responsible for reporting his earnings if they affect the payment of his benefits. He may be subject to penalties if he filed late and if it resulted in an overpayment of benefits.

If the retiree earns more than the yearly exempt amount, Social Security will withhold full monthly benefits until the entire amount that is required to be withheld has been withheld. However, he may request that the withheld benefits be pro-rated over the course of the year.

Here’s how the rules would apply to your client’s situation. Let’s say he earns exactly $30,000 more than the yearly earnings limit. His SS benefit for this year will be reduced by $15,000. The SSA will withhold his entire SS benefits from January through September—for a total of $14,400. In October, the SSA will reduce his check by $600, and pay him $1,000 for that month. He will receive his full $1,600 benefit for the months of November and December.

If he forgot to report his anticipated income, he will be required to pay any over payment received back to the SSA and subject to penalties.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.