Social Security Benefits Available
- Retirement Benefits
- Disability Benefits
- Family Benefits
- Survivors’ Benefits
- Medicare
- Supplemental Social Security
Social Security Taxes and Contributions
- Federal Insurance Contributions Act (FICA)
- FICA is collected through payroll taxes.
- Total taxes of 7.65%
- 6.2% up to $147,000 (2022) of compensation [OASDI (Old Age (OA), Survivors (S), and Disability Insurance (DI))
- 1.45% of total compensation (HI (Hospital Insurance)) (Medicare A Premiums)
- If you’re self-employed you pay both ER and EE FICA (15.3% total )
Qualifying for Social Security Benefits
- To be fully insured a worker must earn 40 quarters of coverage.
- 1 quarter of coverage = $1,510 for 2022 of earnings.
- Maximum accrual of 4 quarters per year.
- For a worker to be currently insured, the worker must earn 6 quarters of coverage out of the previous 13 quarters.
- Limited benefits are only available to select survivors.
- No retirement benefits, are available for currently insured workers.
Additional Medicare Tax
- Additional Medicare tax equal to 0.9 percent of wages during any taxable year beginning after December 31, 2012, and which are in excess of:
- MFJ $250,000,
- MFS $125,000
- Single/HOH/QW $200,000
- This Medicare tax is paid by employees, not employers
- Applies to wages, compensation or self-employment income
- Not indexed – thus, more taxpayers will be subject to the tax over time
- Filed on Form 8959.
Ex: Crystal, a single filer, has $130,000 in wages and $145,000 in self-employment income.Crystal’s wages are not in excess of the $200,000 threshold for single filers, so Crystal is not liable for Additional Medicare Tax on these wages.
- Before calculating the Additional Medicare Tax on self-employment income, the $200,000 threshold for single filers is reduced by Crystal’s $130,000 in wages, resulting in a reduced self-employment income threshold of $70,000.
- Crystal is liable to pay Additional Medicare Tax on $75,000 of self-employment income ($145,000 in self-employment income minus the reduced threshold of $70,000).
SE Tax Calculation
Basic calculation
A = 92.35% times SE income
- 4% times (A) up to $147,000 (2022), plus
- 9% times (A)
SS Beneficiaries
- Participant Worker
- Participant’s Spouse
- Participant’s Children
- Dependent Parents of the worker
- Workers Divorced Spouse
- If the spouses were married for at least 10 years and the divorced spouse is at least age 62 and did not remarry by age 60.
What is the earliest age you can claim ss retirement benefits?
Age 62
62
Calculate the worker’s Primary Insurance Amount (PIA)
- Sum of three separate percentages of the AIME (average indexed monthly earnings)
- 90% of the first $1,024 (2022)
- 32% of the AIME over $1,024 and less than $6,172 (2022)
- 15% of the AIME that exceeds $6,172 (2022)
- Maximum PIA = $3,345 (2022)
- Calculated at age 62
Worker would receive PIA. What would bene get?
Worker would receive PIA.
- A beneficiary of the worker may receive a percentage of the PIA for example:
- The spouse of a retired or disabled worker entitled to benefits who:
- is at least 62 years old, or
- is caring for a child who is under age 16 or disabled.
- The divorced spouse of a worker entitled to benefits if the divorced spouse is age 62 or older and was married to the worker for at least 10 years and not remarried before age 60.
- The surviving spouse (including a surviving divorced spouse) of a deceased insured worker if the widow(er) is age 60 or older.
Early Retirement
May begin as early as age 62.
The benefit is permanently reduced by retiring early.
- 5/9 of a % for each month of early retirement up to the first 36 months of early retirement.
- 5/12 of a % for each month of early retirement greater than 36 months.
Ex: Jill’s normal retirement age is 66 but she decides to retire early and volunteer at her local church. She takes her social security retirement benefit at age 62. What percent of her retirement benefit will she receive?
66 - 62 = 4 years early
5/9 x 36 = 20% plus
5/12 x 12 = 5%
So, her total benefit is reduced by 25% and she will receive 75%.
Delayed Retirement
- Delayed retirement is when the worker begins taking retirement distributions after normal retirement age.
- Delaying taking retirement benefits will permanently increase the benefit received.
- Delayed retirement increases the benefit by 3%-8% for each year of delayed retirement, which is based on normal retirement age.
Social Security benefits may be reduced by:
- Retirement Earnings Limitations Test
- Taxation of Social Security Benefits
Retirement Earnings Limitations Test
- Social Security Retirement benefits are reduced for early-retirees and other beneficiaries who have earnings from continued employment.
- Earnings include:
- Wages
- Self-Employment Income
- Earnings do not include:
- Pension Income
- Investment Income
- Capital Gains
- Before normal retirement age:
- There is a $1 reduction for every $2 of earnings above $19,560 for 2022.
- In the year the retiree reaches normal retirement age:
- There is a $1 reduction for every $3 of earnings above $51,960 for 2022.
- This reduction only applies to earnings in the nine months before attaining normal retirement age.
- After attaining normal retirement age, the retirement earnings limitation test goes away.
REL Example
Taxation of Social Security Benefits
Retirees with substantial income in addition to Social Security benefits will pay taxes on their Social Security benefits.
- Up to 85% of the Social Security benefits may be taxable.
- Taxation of Social Security benefits is based on the worker’s Modified Adjusted Gross Income.
- Modified AGI (MAGI) = AGI + Nontaxable Interest + Foreign Earned Income
If you are under or at first hurdle, none of your benefits are taxed. inbetween 1st and second hurdle, 50% of your beneifts willl be taxed, above second hurdle 85% will be taxed.
Formula
If a taxpayer’s MAGI plus one-half of the Social Security benefits received during the year does not exceed the base amount below, none of the Social Security benefits are includible in gross income.
- If a taxpayer’s MAGI plus one-half of Social Security benefits exceeds the relevant base amount below but not the adjusted base amount, the amount of Social Security benefits that must be included in gross income is equal to the lesser of:
- 50% of Social Security benefits, OR
- 50% x [MAGI + (50% x Social Security Benefits) - Base Amount]
- If a taxpayer’s MAGI plus one-half of Social Security benefits exceeds the adjusted base amount, the amount of Social Security benefits that must be included in gross income is equal to the lesser of:
- 85% of Social Security benefits, OR
- 85% x [MAGI + (50% x Social Security Benefits) - Adjusted Base Amount], PLUS
- Lesser of: Amount included from formulas 1 (.5 x benefits) and 2 OR $4,500 ($6,000 for married filing jointly; $0 for married filing separately)
Disability Benefits (SSDI)
Disability Benefits
- Benefits are payable to workers with:
- Severe physical or mental impairments which prevents them from performing “substantial work.”
- The worker cannot perform any substantial work.
- Disability benefits are payable at any age.
- Benefits are paid if the worker is fully insured with 20 quarters of coverage in the last 40 quarters, unless under 31 years of age.
FYI If you’ve never worked, you can still receive disability benefits in the form of Supplemental Security Income (SSI). Instead of being based on your work history like SSDI, SSI is based on your level of need. Generally, the extremely impoverished and disabled persons who have never worked can receive SSI.M
Death Benefit
The death benefit is a one-time $255 death benefit payment paid to deceased worker’s surviving spouse, or minor child (if no spouse).
Survivors Benefit
Benefits payable to family members of deceased individuals who were entitled to benefits.
- Examples of Widow or Widower who are entitled to survivors’ benefits:
- 60 and older
- Over 50 and disabled
- Caring for a child under age 16
- Caring for a child who was disabled before age 22
- Examples of Unmarried Child who are entitled to survivors’ benefits:
- Under 18
- Under age 19 and in high school
- Age 18 or older and disabled before age 22
- Dependent parents of the deceased worker (These are income tax dependent parents).
Medicare Benefits
- Medicare benefits are a federal health plan for:
- People 65 and older and
- Disabled individuals and
- Individuals with permanent kidney failure.
- Medicare benefits consist of:
- Hospital Insurance - Medicare Part A (usually paid for through payroll taxes - don’t usually have to pay premium in retirement)
- Medical Insurance - Medicare Part B
- Prescription Drug - Medicare Part D
Medicare Part A - Hospital Insurance
“Things” covered during hospital stay (bed, medical equipment, meds )
Dr.s and nurses are not covered by Part A
Get for “free” (premium free) if you have 40 qtrs of SS coverage
coinsurance - amount of money you pay out of pocket for medical services you receive after you’ve paid your deductible
Cheat for remembering the costs. Divide the deductible by 2. That is your big number for per day for nights 91-150. Divided by 2 again. That is your smaller numebr for days 61-90. Divide by 2 again for skilled nursing (AKA nursing home( days. ($194/day).
There are only 60 lifetime reserve days ($778/day). They are use it and lose it. If you do run out, you pay full out of pocket.
Many people are surprised to learn that Medicare does not cover long-term nursing care. Medicare does not provide coverage for people who need to go into nursing homes indefinitely because they are disabled or can no longer take care of themselves. Medicare also does not cover assisted living or adult daycare.
Medicare also does not cover daily custodial care, such as assistance with eating, bathing and dressing.
What Types of Care Does Medicare Cover?
- Skilled nursing care. Medicare helps to pay for your recovery in a skilled nursing care facility after a three-day hospital stay. Medicare will cover the total cost of skilled nursing care for the first 20 days, after which you’ll pay $185.50 coinsurance per day (in 2021). After 100 days, Medicare will stop paying.
- Home health care. If you are homebound by an illness or injury, and your doctor says you need short-term skilled care, Medicare will pay for nurses and therapists to provide services in your home. This is not round-the-clock care. Generally, it’s for no more than 28 hours per week. With your doctor’s recommendation, you may qualify for more.
- Hospice. Medicare covers hospice care. Hospice is care you get to make you more comfortable when you are in the last stage of life with a terminal illness. You’re eligible if you are being treated for your terminal illness, and your doctor certifies that you probably will live no longer than six months. You can get care for longer than that, as long as your doctor says you are still terminally ill.
Medicare Part B
Covers medical insurance - things like drs. and nurses
premiums depend on your level of income
Medical Insurance - Medicare Part B
Individuals pay monthly premium.
Part B covers 80% of:
- Doctor’s Services
- Ambulance Transportation
- Diagnostic Tests
- Outpatient Therapy Services
- Outpatient Hospital Services
- Medical Equipment and Supplies
$233 deductible for 2022 per year.
Prescription Drug - Medicare Part D
Insurance coverage for prescription drugs.
Participant must enroll and pay a monthly premium and a portion of each prescription.
Must have Part A or B to be eligible.
Effect of Marriage or Divorce on Benefits
- Worker receiving benefits based on his own earnings then:
- Benefits continue regardless.
- Individual’s receiving benefits based on spouse’s earnings then:
- Benefits cease at divorce, unless
- Individual is 62 or older and was married longer than 10 years
- Benefits cease at divorce, unless
- Widows and Widower benefits:
- Benefits cease at remarriage unless 60 or older.
