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: The Social Security earnings limit changes each year. This article is written with 2018 numbers.
At one of my first speaking engagements, I heard a great story from one of the attendees about her experience with the Social Security income limit.
A few years before, she’d been at her bridge club when the topic turned to Social Security. As they chatted about it, the consensus around the table seemed to be 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.
Once she started receiving Social Security income, she decided to buy a car she always wanted: a brand-new Toyota Camry. She was still working, which meant her Social Security check would be extra income, so she felt it was a good time to take on the car payment.
So that’s exactly what she did: she bought the car, taking out a car loan that she planned to pay for with the income from 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 not only asked her to pay the benefits back, but also informed her that 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.
What happened here? Something that surprises more than just the poor Camry owner who approached me that day: the Social Security income limit.
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.