Q. I lose 50 cents on the dollar on my Social Security if my income is over $ 18,000 or more. Do I have to return half of my unemployment beyond this amount to Social Security? Does unemployment count as income?
A. Let’s see how social security benefits are calculated and what happens if you continue to work when you receive social security before retirement age.
The ultimate social security benefit you receive is based on all of your income for your the highest 35 years of earned income, said Bernie Kiely, chartered financial planner and chartered public accountant at Kiely Capital Management in Morristown.
He said earned income consists of wages, salaries and self-employment income. Earned income is the income for which you and / or your employer paid social security taxes into the system.
If you have a year with no income, you have zero for that year, Kiely said. After reaching age 35, each additional year of earned income will replace a year with no or no income.
In order to account for inflation, the first years of earned income are adjusted for inflation.
If you continue to work after you start Social Security, your current income could potentially increase future Social Security benefits, Kiely said.
Then, if you receive unemployment benefit during one of your best 35 years of earnings, it will not enter into the calculation of social security because Unemployment benefits is not considered earned income.
Now let’s see what happens to your current social security benefit if you start collecting before your full retirement age.
When Social Security was first enacted in 1937, you could start receiving your benefits from age 62. Your full retirement age was 65. The maximum income subject to Social Security tax was then $ 3,000, he said.
If you continued to work between 62 and 65 while you were receiving your Social Security benefits, there was a negative adjustment to your benefits if you had too much income, he said. Once you reach retirement age, it doesn’t matter how much income you have. It will not affect your performance.
Now let’s move on to 2020.
If you were born between 1943 and 1954, your full retirement age is 66. If you were born between 1955 and 1961, your full retirement age has increased month by month. If you were born in 1962 or later, your full retirement age is 67, he said.
And, the 2020 maximum earned income subject to Social Security tax is $ 137,700.
Currently, you can still benefit from Social Security when you turn 62, but there is a permanent sentence this reduces your Social Security benefit for each month before your full retirement age, he said.
Plus, there’s a reduction in every benefit year if you have too much earned income, Kiely said.
In 2020, if you have $ 18,240 in earned income, it won’t negatively impact your benefit. For every $ 2 you earn above $ 18,240, your benefit will be reduced by $ 1.
If you earned $ 18,240 and received the additional $ 600 in COVID unemployment benefits for six months, $ 3,600 it will be subject to federal income tax, but it will not reduce your Social Security benefits because $ 600 is not earned income subject to social security tax, Kiely said. Again, once you reach retirement age, there is no limit to your earned income.
Send your questions to [email protected].
Karin Price Mueller writes on Bamboo column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.coms weekly electronic newsletter.
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