Finding out that your social security benefits are taxable catches a lot of people by surprise. After all, this is a benefit paid by tax that was collected from you. Now it’s taxed again? Yes.
According to the Social Security Administration 52% of families receiving social security benefits paid income tax on those benefits in 2015. So there’s a good chance that some of your benefits will be taxable. Here’s how you can figure it out two steps.
Note: Social Security earnings limits change each year. This article is written with 2017 numbers.
Many people are surprised by the Social Security income limits. At one of my first speaking engagements, a lady came up to me and told me her story. She was in a bridge club with several other women, and one day the topic turned to Social Security benefits. The consensus around the table was that filing at 62 was the smartest thing to do. This lady, trusting the advice of some of her closest friends, filed for benefits as soon as she turned 62.
She told me that she’d always wanted to buy a brand new Toyota Camry. She figured that now was the perfect time to buy this car. She was still working and her Social Security check would be extra income. So that’s exactly what she did: she bought the car, and took out a car loan to be paid with her Social Security benefits.
A few months later, she received a nasty letter from the Social Security Administration stating that she had been paid benefits that she was not eligible for. They asked her to pay the benefits back and informed her that she her benefits would be suspended due to her income. Now she had a new car, and a car loan, without the Social Security benefits to pay for it.
Social Security for Educators is the hottest topic that I speak on. At these speaking events I usually get asked a lot of questions. Many of them are similar from place to place, but there is always one question that is asked every time. Why? Why do they pick on educators with these crazy Social Security rules?
In this video I’ll go into the thinking that went into setting up these weird rules.