Advanced Underwriting Consultants

Question of the Day – September 6

Ask the Experts!

Here’s the question of the day.

Question:  My client is collecting pension benefits.  Are Social Security taxes collected from those payments?

Answer:  No.

According the Social Security Administration’s website:

You may have to pay income tax on pensions, annuities, interest or dividends, but you do not pay Social Security taxes. Those types of income are not on your Social Security record.

Social Security taxes do apply to employee contributions to a qualified plan—such as elective deferrals to a 401K plan.  However, they do not apply to employer contributions to most qualified plans.

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. 

Question of the Day – May 21

Ask the Experts!

Here’s the question of the day.

Question: My client worked for years for a government employer where she did not pay Social Security taxes.  Will her eligibility for Social Security retirement benefits—on her own record or her spouse’s—be affected?

Answer: Yes.  Both types of benefits will likely be reduced.

According the Social Security Administration’s website:

The Windfall Elimination Provision affects how the amount of your retirement or disability benefit is calculated if you receive a pension from work where Social Security taxes were not taken out of your pay. A modified formula is used to calculate your benefit amount, resulting in a lower Social Security ­benefit than you otherwise would receive.

The amount of the reduction depends on a number of factors.

If a person collects a government pension from an employer where they did not pay Social Security taxes, any spousal retirement benefit to which they might be entitled will also be reduced under the Government Pension Offset rule.  Here’s a description:

If you receive a pension from a federal, state or local government based on work where you did not pay Social Security taxes, your Social Security spouse’s or widow’s or widower’s benefits may be reduced….

Your Social Security benefits will be reduced by two-thirds of your government pension. In other words, if you get a monthly civil service pension of $600, two-thirds of that, or $400, must be deducted from your Social Security benefits. For example, if you are eligible for a $500 spouse’s, widow’s or widower’s benefit from Social Security, you will receive $100 per month from Social Security ($500 – $400 = $100).

If you take your government pension annuity in a lump sum, Social Security still will calculate the reduction as if you chose to get monthly benefit payments from your government work.

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.

Question of the Day – May 2

Ask the Experts!

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

Question: I know pension plan contributions are generally not subject to income taxes.  Are they subject to Social Security taxes?

Answer: In general, only employee deferral contributions are subject to Social Security taxes.  Employer contributions are not subject to Social Security taxes.

Social Security taxes consist of

  • The Old-age, Survivors, and Disability Insurance (OASDI) portion, which is 6.2%
  • The Medicare portion, which is 1.45%

Both the employer and employee have to contribute these amounts—7.65% for each—to wages up to $110,100 in 2012.  The Medicare portion only applies to compensation in excess of that.

Amounts distributed to an employee from a qualified plan are generally income taxable, but are not subject to Social Security taxes.

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.