There is a limit on how much you can earn annually ($21,240) while receiving SS benefits without it impacting the amount you receive. It is different, though, during the first year you receive benefits - the limit becomes $1,770 per month for every month for the rest of that year. This is to not penalize you for earnings during the calendar year before you claim SS.
For example, if you start receiving SS in June, 2023, your earnings for January through May, 2023, will not “count”. Starting in June you are limited to the monthly $1,770 limit through December, then you switch over to the annual 21k limit in January, 2024.
So, here are my questions:
Is the monthly limit based on when you earn it, or when you are paid for it? (for example, you may have actually worked toward the end of the month but you are paid in the beginning of the following month)
How does SS know to withhold your check on the months where you go over the limit? Are they regularly informed of how much you earn each month?
But as a threshold issue, this rule only applies if you are receiving benefits before your FRA. After your FRA this rule does not apply at all.
Secondarily, you said “earn”. W2 wages and 1099 payments for services rendered count. Money received from pensions, IRA withdrawals, stock and bond dividends, interest, security sales proceeds, rents collected on owned real estate, etc., all do NOT count as “earnings” for this purpose.
My suggestion is that before you worry about the excellent questions you did ask, be sure they even need an answer in your situation.
Late ETA: I don’t mean to pooh-pooh your questions. I will be in almost that exact situation later this year and am wanting almost those same questions answered myself.
This is educated guesswork, but as to the first question, it’s probably when you’re paid for it. That’s the way everything for federal income taxation works.
I’m in effect an hourly laborer. We’re paid a month behind, so all our wages received in January are for the specific types and hours of work performed in Dec. But they are accounted in the new year’s annual totals for all tax purposes, even SS & medicare taxes.
I expect the same to be true for SS payout qualifying purposes, just for simplicity of reporting if nothing else.
As to how do they know, recall that employers must withhold taxes and send the money to the Feds with each pay period. Whether that’s weekly, 2x/month, or whatever. IIRC the report / info return that goes to the Feds with that remittance of withholdings includes the details of what amount was withheld from who for why. The details on “who” are needed so the feds can apply the payment to the correct employee’s tax accounts.
Lets say you work for 40 years without any gaps in between these 40 years when you unemployed, and your overall gross income over the course of40 years is let’s say one million dollars.
if you retire at 65, how much money can you expect to get monthly from Social Security for the rest of your life?
Iam not sure about this, but I think the amount of SSI benifits per month depends on how long you were in the workforce, and the grand total of your lifetime gross earnings according to your W2 forms.
One million dollars is just a ballpark figure.
Iam sure alot of people will make less, while alot of people will make substantialy more.
The rules are actually pretty logical. Start with info about every year you ever earned any W2. Which might be over 15 years or over 60 years depending on when and how you worked. Adjust each individual year’s earnings (up to that year’s SS maximum) forward to equivalent current = 2023 dollars using the published inflation factor for then to now.
So now we have a list of every years’ earnings (from zero up to the SS max that year) expressed in 2023 dollars. Pick the highest 35 numbers whenever they occurred. If you worked less than 35 total years, some of those will be zero.
Average those 35 numbers together to get your average earnings per year expressed in 2023 dollars. Divide again by 12 to convert to obtain Average Inflation-corrected Monthly Earnings or AIME. Which is a magic SSA term.
Your benefit at full retirement age (FRA) is a sliding percentage of your AIME amount. The actual calculation of your actual benefit (at FRA) goes like this: It’s 90% of the first $1115 of AIME plus 32% of the next $5606 of AIME, plus 15% of any excess AIME.
The punchline being someone with a very low annual W2 income their whole life will receive an SS benefit at FRA equal to 90% of what they earned as a worker. Folks with higher wages receive a lesser percentage. If you run the numbers you’ll find that someone whose entire work life was spent at / above the SS annual maximum will receive an FRA benefit of about 25% of the current SS maximum. Punchline: SS is very, very progressive. Which is a good thing.
Of course I’ve just described the FRA calc. If you take benefits earlier or later than right at your FRA then that number is further adjusted ~7% per year down or up for that reason.
See
for links to online calculators to help. If you don’t already have an account at ssa.gov, you totally need one right now.
Stupid question, but I’m Canadian… why would they not just collect the over amount in income tax, instead of reducing SS for income earned the year(s) you are receiving it? Canada Pension has no “reducer” but it counts as income like everything else so if you have pension, withdrawl from tax-free savings, etc. you are in a higher tax bracket and paying back a decent amount. No other income, you pretty much pay no taxes. Why wouldn’t SS go that route too? A lot less paperwork. I sense some incentive for under-the-table income…
“FRA” is your “Full Retirement Age”. That is the age/date the SSA considers to be when you will / should / could retire from wage labor. For most of SSA’s history that was your age 65 birthday. About 30 years ago they passed a “reform” to slowly raise the FRA from 65 to 67. With the change being phased in over the course of ~20 years. For folks retiring this year their FRA is the month they turn age 66 years 8 months.
That is the baseline date off which all benefits are calculated. Lots of extra limitations on working apply to benefits taken before that date. None apply after that date. Benefits taken between age 62 and FRA will trigger a monthly benefit reduction for life, since you’ll get more payments before death. Benefits begun after FRA will trigger a monthly benefit increase for life since you’ll get fewer payments before death. Etc.
“Why” questions on government programs are always fraught. Accidents of history (read political expedience at the time) loom large and become perpetuated by then-vested interests in the status quo. I know zippo of Canadian practice, so can make no useful comparisons for you.
In the US, the original design of social security and its implementing body SSA was very deliberately firewalled off from the income tax and its implementing body IRS. In theory they are still utterly separate today. When SS got going, the benefits were totally untaxed / untaxable. In fact even today they cannot be seized / garnished by creditors to pay a legal debt. They are given strictly so granny can buy food and shelter, period.
Subsequent “reforms” have rendered a portion of SS’s payments taxable as ordinary income. On a sliding progressive scale. Which is a benefit cut for the better off while being totally disguised as something that makes no change in the size of their SS “benefit”. SSA giveth, and IRS taketh away. See? No cut!
An awful lot of the US government’s actions since, say, 1900 can be attributed to the need to ensure that anything related to taxes or benefits is disguised as something else to avoid riling the anti-taxers or the anti-socialists. Nothing pisses off an anti-socialist more than having his social benefits taxed. Hence the need for subterfuge and the resulting hidden perverse incentives. Which themselves amount to a tax on the dull or uneducated. You know: poor people. F*** 'em; it’s the American Way.
Thanks. I assumed there was something about benefits not paid out help keep the SS pot higher, while tax collected does not go back into the SS fund. But, yeah - politics.
Probably that too. But even that is still an accounting fig leaf because when push comes to shove it’s all one government and it’s all fungible money.
Some fig leaves are bigger or thicker or less itchy than others. But they all disguise the bare facts that under there, somebody is running around naked.
I don’t have an exact answer for you, but I am dealing with something similar.
I’m a retired federal employee - in fact, a retired air traffic controller. Since controllers are required by law to retire from that job at age 56, our pensions include what’s called a “Social Security supplement” - a portion of what we would receive from Social Security at our FRA is added to our regular pension amount each month. At age 62, that supplement stops, and then I’ll sign up for my “real” Social Security at some point after that.
Now, I’m not sure whether that supplement is actually coming from the SSA, or if it’s calculated and paid from a different governmental budget line, but it’s treated the same - earned income limits apply, if I go over the $21,000-ish amount in a calendar year, they’ll reduce my supplement amount for the following year. However - and to your question - the basic way of the government discovering my earnings is by … asking me.
Every year (I think in January) I get a letter asking me if my earned income from the previous year was above the limit, and if so, I’m supposed to self-report exactly what I did earn in that calendar year. If I didn’t earn that $21,000-ish amount, I don’t even have to send the request letter back.
So it seems like self-reporting is the first step. I have no doubt the SSA has ways to confirm what I might report, through W-2s and 1099s and the like … but it seems like you could essentially start by reporting the amount you actually earned during those months, instead of what payments you received for prior months.
For the Feds it is when you were paid.
SS does not know to withhold a check. Unless you tell them. I believe you make an estimate of how much you will be making in the remainder of the year. Your paid out benefit will be based on that estimate. You will be wrong, it happens.
So at the end of the year if you were underpaid you will receive a benefit increase for one month. If you were over paid SS withhold part or all of your monthly benefit until the overpaid is covered.
