A Social Security benefit is the amount the Social Security Administration (SSA) calculates that you are eligible to receive each month based on earnings history, claiming age, and the type of benefit appropriate for you, says a recent article, “8 Things That Can Lower Your Monthly Social Security Payments” from AARP. The payment is the amount of money arriving in your bank accounts every month. There could be a big gap between the two. Here is why.
Medicare Premiums matter. Suppose you are collecting Social Security and are also a Medicare recipient. In that case, premiums for Part B, the part of Medicare paying for doctor visits and outpatient treatments, are automatically deducted from monthly benefits.
This is the standard Part B premium for most people, although beneficiaries with higher incomes are charged up to several hundred dollars a month more for Part B. This begins at $97,000 yearly for an individual and $194,000 for a couple filing jointly.
Those who pay the standard rate are covered by a provision of Social Security law called “hold harmless.” This prevents your monthly payments from decreasing yearly due to an increase in Part B premiums. This provision does not apply to anyone in their first year of Medicare coverage or paying a higher premium rate.
Are you still working? If you claim Social Security before Full Retirement Age (FRA) and are continuing to work, benefits will be smaller. In the years before FRA, $1 is withheld from monthly benefits for every $2 earned over an annually set cap. In 2022, the cap is $19,560. If you make $30,000 from a part-time job, the difference between the earnings limit is $10,444, so $5,440—half that amount—will be deducted from benefits for the year.
However, in the calendar year a taxpayer reaches FRA, the limit goes up, and withholding goes down. When the taxpayer reaches FRA, the earnings test ends, and no matter how much is earned, there’s no withholding. This is also when the SSA recalculates the benefit to a higher amount, repaying for the pre-FRA withholding.
Federal income taxes are still due for those with incomes above $25,000 (single) or $32,000 (married, filing jointly) on between 50—85% of Social Security income. There is an option to have federal taxes withheld from monthly benefits and at what rate. Some states tax Social Security income. However, there’s no means of withholding state tax payments from monthly benefits.
Government pensions. The Windfall Elimination Provision (WEP) reduces retirement or disability benefits for people who collect a pension from a job where they did not pay into Social Security and qualify for Social Security. This mainly refers to state or local government agencies not covered by Social Security. It can reduce a monthly benefit by up to one-half of the pension payment.
A similar rule, the Government Pension Offset (GPO), applies to people who receive Social Security spousal or survivor benefits and non-covered government pensions. Military retirement pay does not impact Social Security benefits.
Debts cannot be paid through Social Security. Taxpayer’s Social Security benefits may not be garnished to pay commercial dept or seized in bankruptcy. However, the federal government can withhold benefits for government-managed debt, including back taxes, non-tax obligations for federal agencies, and court-ordered payments, such as alimony, child support, or restitution to crime victims.
Have they got overpayment? If a taxpayer receives more than they were supposed to get in previous benefit payments, SSA may withhold some or all benefits to recoup the overpayment. This most often occurs with Supplemental Security Income (SSI).
Family Maximum: There is a limit to how much a family unit can receive from Social Security. Let’s say a taxpayer is getting retirement benefits, and their children and spouse all qualify for benefits. A formula calculates the family max, which generally is between 150-180 percent of the basic benefit. If all the family’s benefits added together exceed that number, the spousal and offspring benefits will be reduced equally. The maximum only affects benefits paid to spouses and children, not benefits paid to the primary earner.
Workers’ Compensation. Receiving SSDI (Social Security Disability Insurance) and Worker’s Compensation? Combined, these two benefits cannot amount to more than 80% of what Social Security determines to have been your average earnings before becoming disabled. This is a federal law. If applicable, one or the other will be reduced to under the cap.
Reference: AARP (Oct. 5, 2022) “8 Things That Can Lower Your Monthly Social Security Payments”