I know that once you start collecting SS benefits at age 62, for example, you can earn only so much outside of SS before the government starts taking some of the SS back (until you hit a certain age, and then there’s no limit).
In a hypothetical situation (at least for the next number of years), if one spouse is 62, not currently employed, but is eligible to receive SS–but the other spouse continues working, is there a penalty come tax time?
Why would there be a tax penalty? BTW, the offset on early SS benefits is 4/9% a month for each month you start taking benefits before full retirement.
Correction: 5/9% a month.
While the spouse’s wages isn’t a factor in determining if the $1 for every $2 excess earned, they do come into play when figuring the tax on SS benefits. (The formula for this is Byzantine and can result in having a 47% marginal tax rate.)
There are three factors here that we need to keep separate. So far in 2 answers we’ve already had a red herring.
If someone begins receiving SS before the full retirement age, currently 65, they will get less per month than if they wait until full retirement age. Likewise they can wait until after 65 to start taking and get more per month.
If someone makes enough wage earnings above and beyond them receiving SS payments, the SS payments may be partly withdrawn.
If someone has enough non-SS earnings, the SS earnings they do get become subject to income tax. For folks filing jointly, the combined household income is what matters for this rule.
All three of these are different rules with different phase-in points and different details.
All the specific details are beyond my expertise. But for darn sure confusion will reign if folks mix these basic ideas together.
The offset for early retirement is 5/9% a month, as i said. And full retirement age is no longer 65. It is being raised in increments until it reaches 67. Presently it is 66 +.
This is true for benefits paid before full retirement age but you get it back.
everything about one’s retirement is a special case so you have to talk to the SS Admin about your situation.
In general, and how it works for us, the retirement of one person does not effect the SS of another person. So there are no penalties for the working person or the retired person.
The TAX situation OTOH is effected. Assuming the taxes of the two people are combined in some way (say joint filing), then the retirement income may be taxed in a special way. Again, it depends on the specifics.