Social Security Earnings Test

[Independent]

I figured I understood this. If you start SS benefits before your Normal Retirement Age, and then work and earn "too much", your SS benefit will be reduced by $1 for each $2 of excess earnings.

Right?

I've hung around this forum long enough to know that if I'm considering working that much, I could look into reversing my SS application, repaying my benefits, and reapplying at NRA. I doubt that very many people would think of that.

But here's another angle. If I work and have my benefits reduced, the SS admin will recalculate my benefits at NRA, effectively refunding the entire amount that I lost.

I didn't know that. This guy, AEI - Short Publications - The Social Security Earnings Test says that most people don't know that, partially because the SS admin hasn't made an effort to tell them.

How about the people here. Is this old hat or news?

[samclem]

I'd never heard of that. Interesting. Giving you your full NRA check every month if you repay the benefits you took is one thing (and amazing enough in itself), but refunding taxes you've paid because you've changed your mind--that's a much bigger step.

I'd sure want to get it in writing from the SSA before I tried it. And I'd be conscious every day that they could change the policy--"Sorry, no refunds."

[Tadpole]

Originally Posted by samclem

I'd never heard of that. Interesting. Giving you your full NRA check every month if you repay the benefits you took is one thing (and amazing enough in itself), but refunding taxes you've paid because you've changed your mind--that's a much bigger step.

I'd sure want to get it in writing from the SSA before I tried it. And I'd be conscious every day that they could change the policy--"Sorry, no refunds."

I agree. This means that only people who can afford to take the risk should play the game.

[Bikerdude]

Originally Posted by Independent

I didn't know that. This guy, AEI - Short Publications - The Social Security Earnings Test says that most people don't know that, partially because the SS admin hasn't made an effort to tell them.

How about the people here. Is this old hat or news?

A friend of mine went to his local SS office to apply. One of his questions was about the repayment of SS withheld due to work. The SS agent claimed there was no repayment that she was aware of. Looks like SS doesn’t even tell their own people.

[donheff]

It sounds like Independent is talking about the normal SS reapplication process that Burns and others have written about. He would reapply, pay back exactly what SSA paid him and SSA would recalculate his benefits at the current age including adjustments for additional quarters worked. This would work fine if the reduction in benefits was made by SSA but would not effect any extra income taxes you paid during the intervening years.

[samclem]

Originally Posted by OAG

Insofar as the taxes paid (if any), from the initial first application and withdrawal you have two options. One is a tax DEDUCTION (Schedule A) or a Tax CREDIT on line 70 or line 71 of IRS from 1040 - you should calculate which gives you the best refund.

OAG, how would that work? Say you paid $3000 each year for the last 3 years in these 1-for-2 SS "penalty taxes" because you worked while you were receiving benefits. So, you paid $9000 in extra taxes. Now, you've repaid SS all the money that you received over those years. Do you get a $9000 tax credit? For, do you look back over those years, determine al the income you were taxed on that wouldn't ave bee taxed had you not been receiving SS, and then list this as a deduction from your present income?

Or, maybe would you file amended returns for those 3 years? Ugh.

Sounds fairly complicated.

[OAG]

In any event it appears the SSA computers are programed to make the calculation at full retirement age and paying the higher benefit with no input from the recipient or human input on the part of SSA employees.

[OAG]

Originally Posted by samclem

OAG, how would that work? Say you paid $3000 each year for the last 3 years in these 1-for-2 SS "penalty taxes" because you worked while you were receiving benefits. So, you paid $9000 in extra taxes. Now, you've repaid SS all the money that you received over those years. Do you get a $9000 tax credit? For, do you look back over those years, determine al the income you were taxed on that wouldn't ave bee taxed had you not been receiving SS, and then list this as a deduction from your present income?

Or, maybe would you file amended returns for those 3 years? Ugh.

Sounds fairly complicated.

I got so confused after writing that and then reading the OP's initial posting and the link I went back and just deleted my post. What I was talking about was application withdrawal (and repayment of all benefits received on the initial application) AFTER full retirement age and then reapplying for benefits again at a later age (i.e., at age 70). In the year you repay benefits the SSA sends you the routine 1099 they use to report benefits received (to you and the IRS) and since in the year of repayment you have a NEGATIVE number you can account for the repayment in one of the two ways I mentioned.

[Independent]

Originally Posted by donheff

It sounds like Independent is talking about the normal SS reapplication process that Burns and others have written about. He would reapply, pay back exactly what SSA paid him and SSA would recalculate his benefits at the current age including adjustments for additional quarters worked. This would work fine if the reduction in benefits was made by SSA but would not effect any extra income taxes you paid during the intervening years.

I think there are two different processes.

One process has you "re-applying" and writing a check to the government for the benefits you've already received.

The other seems to be automatic (or an easy application). They just increase your benefit at NRA to adjust for the reduction they already made. You keep the benefits you've already received.

Of course, the monthly benefit after NRA is bigger in the first than the second, but they are "actuarially equivalent".