What is the social security income limit? – The fool

Social security was originally designed to help people replace their employment income after retirement, usually at the age of 65. But over time, the program has changed. Security payments while they are still working. There is nothing to stop you from claiming social security while you are still collecting a pay check. However, if you do it before you reach the full retirement age – currently between 66 and 67, depending on the year of your birth – you may have to repay all or part of the retirement benefits you receive if your income is above a certain limit.

You will find below the social security income limit for 2018 and its year-to-year evolution. You will also learn when the income limit applies and when it does not. First of all, it is helpful to understand what prompted lawmakers to create a social security income limit in the first place.

A brief history of social security and income limits

The social security program began in the 1930s under the economic pressure of millions of Americans during the Great Depression. The Social Security Act came into effect in 1935 and created a social insurance program that provided a continuous source of income for retired workers aged 65 and over. In 1940, the program started providing monthly benefits not only to retired workers, but also to eligible family members.

However, the original law made it very clear that for workers to get benefits, they had to be retired. According to the last wording of the Social Security Act of 1935, "whenever the Commission finds that a qualified person has received a salary for regular employment after reaching the age of sixty-five, the benefit of reduced for each calendar month in any part of which regular employment has occurred, of an amount equal to one month of benefit. "

This essentially set the initial social security income limit at zero, and the total monthly benefit was forfeited even if the amount earned was less than the social security payment.

In 1939, however, legislators decided that, to honor the idea that social security was an additional source of income in old age rather than the main source, it made sense to allow seniors to earn at least a minimal amount without penalty. An amendment allowed recipients to earn up to $ 15 a month – about a quarter of the minimum wage at that time – without causing the elimination of benefits. Other changes in 1950 eliminated the income limit for people aged 75 and over and raised the threshold for young beneficiaries to $ 50 a month and subsequent moves further reduced the age maximum and increased the income limit.

In 1960, the nature of the income limit changed. Until then, any work exceeding the limit would result in the loss of all benefits. But workers and retirees did not like this provision, and lawmakers replaced it with a more gradual confiscation provision. Under the changes adopted that year, for monthly earnings ranging from $ 1,200 to $ 1,500, benefits would be reduced by $ 1 for every $ 2 of earnings above $ 1,200. When monthly earnings exceeded $ 1,500, all benefits would be lost.

The start of social security benefits for pre-retirees

Meanwhile, the scope of social security has widened. In the early 1960s, social security began to allow all workers to start receiving benefits at age 62 if they were willing to accept reduced payments in exchange for their retirement before the age of 65 years. This change has dramatically increased the number of working-age Americans who might consider taking Social Security.

After that, subsequent amendments to social security laws in the 1970s and 1980s began to make distinctions between the group of early retirement beneficiaries and those who had reached full retirement age. More gradual confiscation provisions were applied to the older group; namely, they would lose only one dollar per $ 3 of earnings beyond the limit, instead of the $ 1 to $ 2 rate that applies to those who have reached the $ 1 mark. retirement age. The income limits were also linked to inflation, which allowed them to increase gradually over time, without the direct intervention of Congress.

In 2000, legislators effectively repealed the income limits of social security benefits for those who had reached full retirement age. The 2000 Freedom to Work for Seniors Act completely eliminated the income limit for those 65 and older, leaving only the limit for those who chose to receive early benefits.

How does the current version of the social security income limit work?

Currently, the social security income limits apply only to beneficiaries who have not yet reached the retirement age. The Social Security Administration uses two separate earnings tests to determine if and how much the profits of someone will be reduced. One applies to those who will be younger than the age of full retirement in 2018, and another concerns those who started the year younger than that age but who l & rsquo; Reached in 2018.

If you are younger than the age of full retirement in 2018, the Social Security income limit is $ 17,040. If you earn more than $ 17,040 in earnings during the year, you will have to repay a portion of your benefits. The amount you lose is $ 1 for every $ 2 above the $ 17,040 threshold. So if you earned $ 20,000 in 2018, your income exceeded the $ 2,960 threshold and you would lose half that amount, or $ 1,480.

Those who reach the age of full retirement in 2018 have a more generous income limit, which reduces the chances of losing benefits. If your winnings before reaching the age of full retirement If you earn more than $ 45,360, you must waive $ 1 benefit for every $ 3 more than this threshold. However, once you reach the retirement age, your earnings are unlimited. As a result, you may not have to waive any of your benefits, even if your total annual earnings exceed $ 45,360. if the excess earnings occurred after you reached the age of full retirement.

For the purposes of the SSA Earnings Criterion, "income" is defined solely as an amount from your work or self-employment, including bonuses, commission income, and personal leave payments. This does not include pensions, annuities, investment income or other retirement benefits.

Special rules for income limits

Several special rules apply to social security income limits. The one applies to anyone who begins to claim his benefits in the middle of the year and it is easier to explain it by an example. If you reach the age of 62 during the year and you apply for benefits immediately from July, the income limits apply only to six months of income. you earn after you start receiving Social Security checks. However, the rules require you to calculate the annual limit on a monthly basis. $ 17,040 divided by 12 is $ 1,420 per month, so if your earnings from July were greater than six months multiplied by $ 1,420 per month, or $ 8,520, you will have to repay some of the benefits received.

Another special rule applies if you plan to retire in the middle of the year. Even if your earnings would normally make you lose your benefits for a given month, you can still receive a full social security check if you stop earning money in that month. For example, if you have earned enough money in the first six months of the year to waive the full 12 months of Social Security payments, then ended at the end of the year. month and during the last six months of the year, because Social Security will consider you to be retired during this period.

Finally, if you work outside the United States, the income limits do not apply. Instead, if you work more than 45 hours in a given month, then Social Security will retain the entirety of your benefit check for that month. It does not matter how much or how much you win. This rather draconian provision is the last vestige of how the initial earnings limitation applied to the entire social security program at the beginning of its history.

What happens if you fail the earnings test?

Once the Social Security Administration has discovered that your earnings exceed the threshold, it will begin to apply the appropriate amount of discounts. The SSA prefers that you declare your earnings proactively, but because it receives your employer's payroll reports, the agency usually knows pretty quickly if your earnings have exceeded revenue limits. Even for independent businesses, the income tax forms will contain the amounts of net income that the SSA needs to calculate the appropriate reduction.

The exact manner in which the confiscation of benefits is effected varies from one situation to another. If you notify the SSA of your expected income for the year, the agency can automatically retain the appropriate number of monthly benefits before they are sent to you. However, if the SSA only confirms that you have excess income after when you pay benefits, you will have to repay them, or the SSA will retain the amount overpaid for future benefit checks.

Legislators have realized that the loss of benefits without compensating for this loss would be unfair to those who choose to continue working after claiming Social Security, especially those who have to return to work for financial reasons. As a result, beneficiaries who renounce benefits will later receive benefits that will offset the amounts they have sacrificed.

The way it works is a bit complicated. When you apply the earnings limit, you determine a dollar amount of benefits you will lose. The SSA examines this amount and determines how many full months of benefits it represents. For each month of benefits that you lose or need to repay, the amount of your monthly benefits once you have reached the age of full retirement is adjusted upward. The adjustment is based on what you would have received if you had chosen to receive social security benefits a month later. This is a real benefit because those who apply for benefits earlier must agree to a reduced monthly amount.

An example shows how it works. Suppose the age of full retirement is 66 but you choose to claim Social Security benefits at age 62. The amount you would have is 75% of what you would have expected up to 66 years. up to the age of 66 and have sufficient income to have the amount of social security confiscated equal three months of benefits each year for four years.

In this situation, the total number of months of benefits you gave up was three times four or 12. But in exchange for the initial loss of those 12 months of benefits, once you turn 66, you will be treated as if you d at retirement 12 months later, at the age of 63, which will cause the Social Security Administration to recalculate the amount of your monthly checks, which will result in a 75% increase in your retirement pension at 80%. This increase will remain in effect for the rest of your life. The idea is that over time, the higher amount you will get will make up for the money you have lost in initial social security benefits.

And if you do not want to lose social security benefits?

If you do not want to deal with the disadvantages of violating the social security income limits, you can do several things. The simplest way is not to claim early retirement benefits. If you are waiting for the full retirement age before you start receiving Social Security, the amount you will earn, the time you retire, or if you choose to return to work does not matter. Since income limits no longer apply to those who have reached the retirement age or at a later age, waiting until the record is reached. being deposited guarantees that you will never have to worry about it.

Another simple way to avoid getting around income limits is to wait until you have stopped working to claim your social security benefits. As the special rule above demonstrates, even if your earnings were above income limits during the year you decide to retire, Social Security will pay you a full benefit check for any month in which you will be retired. If you only claim benefits for months during which you have no income, you should not lose money for confiscation. The only drawback of this provision is that if you decide to return to work before reaching retirement age, you will have to consider the income limits at this point.

Those who have recently applied for social security benefits also have an additional option to consider. Up to 12 months after you start receiving benefits, you have the option to withdraw your social security application using a special form, the SSA-521 form. If you claim benefits and realize that your earnings will be above income limits, resulting in the loss of all or part of your benefits, withdrawing your application will give you a second chance to decide once and for all. I really want to start to receive social security payments. You will have to reimburse all the benefits you have already received from Social Security, but later you will be treated as if you have never applied. This usually means that your monthly benefit will be greater than it was originally.

Will the social security income limits still apply?

At this stage, the provisions on social security income limits are quite rigid, and nothing is in place to automatically change their application. In fact, as the retirement age increases from 66 to 67, a potentially wider range of beneficiaries in the early to mid-sixties may be subject to the decision to stay in the workforce .

Some lawmakers are still trying to completely remove the income limits. A new law on the freedom of work of the elderly has been introduced in 2017, aimed at allowing unlimited income regardless of age, without affecting social security benefits. However, the bill and other similar bills have generally failed to gain broad support.

One of the challenges of changing the income limits is that the social security program is already suffering from financial stress. Current projections suggest that trust funds that help support social security benefit payments are expected to be exhausted by the mid-2030s. If this occurs, the result could be a reduction in social security benefits. more than 20%. In this context, legislators are reluctant to consider new provisions that could increase the amount of benefits paid. Unless the government finds a solution to the financial problems of social security, the chances of the social security income limits being repealed seem minimal.

Nobody wants to return the valuable social security benefits he has spent throughout his life. The social security earnings test may seem like a punitive measure aimed at harming those who have to return to work during their golden age. However, the reality of the earnings test is that it helps to achieve the program's goal, which is to supplement the income of Americans during their retirement. Understanding the rules that govern the income criteria and resulting forfeiture provisions will show you exactly what you need to do to avoid losing the social security you have earned.