PFRDA

Social Security Income and Taxation?

I am 56 1/2 years old and am starting to analyze my options in reference to collecting social security payments. I had heard that there is something referred to as a "cap" on social security and it is related to taxation on social security monthly distributions. Initially I though it made sense to take my social security when I was first eligible (age 62 years and 0 months). But I was also told that I had to be careful in doing so because other income that I may have (savings distributions, pension and wages if I am still working), could cause me to have to pay taxes not only on my social security income, but on my pension as well. I recently read that if I waited to age 66 years and 0 months to take social security distribution, that the social security "cap" is no longer in place and I would never be taxed on social security distribution no matter how much income I received. So here are my questions 1. This cap that I described above, am I accurate with my understanding of how taxation on social security distributions works? Is there a point at which I will never be taxed on social security? 2. If there is a cap, what is it? Maybe taking social security at age 62 would not cause me to be taxed on those distributions. 3. Are there tax laws in place that apply to my pension as well? Where can I find the information needed so that I can make good decisions on when to take these distributions without being taxed?

Public Comments

1. If you start collecting at 62 and keep working, you have 2 issues. 1. Earnings above $14K will cause you to lose SSA benefits because you not full retirement age. It's not dollar for dollar. 2. if 1/2 of your SSA benefits plus all of your other income is more than $25,000 (single), then some of your SSA Benefits are taxable. This maxes out at 85%, 3. Pension income is other income and fully taxable. The only way your pension is not taxed is if you are poor. Eg, Your only income is pension $10,000 and SSA $20,000. 1/2 of SSA plus pension is $20,000 which is less than $25K, so none of the SSA is taxable. $10,000 of remaining income at age 62, is taxable income of $650 or tax of around $65. At 65, $0.
2. 1) No. Up to 85% of your Social Security can be subject to tax if your other income is high enough regardless of your age. This seems to be a rather common misconception. I have a client who is in her 90s and, due to her pension, she pays tax on 85% of her social security. 2) See 1 3) Pensions are generally taxable except for any portion that is a non-taxable recovery of basis. Generally speaking, most pensions/401k's, etc. are 100% taxable and always have been.
3. No there isn't a pointat which you wouldn't be taxed on ss. There are two kinds of limits,. One is a limit on your EARNED income (from working) to avoid losing some of your ss payment. That's the one that ends at your full retirement age. Until then, if you are still working and make over a certain amount your ss benefits are reduced. See http://ssa.gov/pubs/10077.html#working for more info and for the limits. The other issue, totally separate from the earnings cap, is whether or not part of your ss is taxable. That depends on what other income you have. If you only have ss for income, it isn't taxed. If you have other income besides the ss, whether from working, pensions, investments or some other taxable source, then up to 85% of your ss might be taxable. This depends on the income amount, not your age - doesn't change no matter how old you are.