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Too much income to take Social Security this year
Old 10-02-2006, 03:32 PM   #1
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Too much income to take Social Security this year

My wife's sister went to the Social Security office to apply for her Social Security at age 63.5 in July. She was being severed from her eliminated position with Kaiser as of the following month, August, with 26 weeks of severence pay. According to her husband, she was told by the Social Security office that she was making too much money to apply this year, that she was disqualified.

I know that if you continue working after beginning Social Security you will be penalized by a reduction in benefit (one for every two?) after the first $14,000, or something like that. Does severence pay count as wages? Can someone point me to the appropriate non-legaleese, government gobble-de-gook explanation.
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Re: Too much income to take Social Security this year
Old 10-02-2006, 03:41 PM   #2
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Re: Too much income to take Social Security this year

Quote:
Originally Posted by Elderdude
My wife's sister went to the Social Security office to apply for her Social Security at age 63.5 in July. She was being severed from her eliminated position with Kaiser as of the following month, August, with 26 weeks of severence pay. According to her husband, she was told by the Social Security office that she was making too much money to apply this year, that she was disqualified.

I know that if you continue working after beginning Social Security you will be penalized by a reduction in benefit (one for every two?) after the first $14,000, or something like that. Does severence pay count as wages? Can someone point me to the appropriate non-legaleese, government gobble-de-gook explanation.
I can see how she could make too much to "collect", but "too much to "apply" seems funky to me. BTW, I almost screwed up when I applied.
A very young girl was taking my info. I accidentally told her that I still
owned my company although I received no income. I saw the red flags pop
up. Fortunately, she turned me over to a more seasoned person
and after that it was quick and painless.

JG
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Re: Too much income to take Social Security this year
Old 10-02-2006, 03:41 PM   #3
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Re: Too much income to take Social Security this year

Quote:
Originally Posted by Elderdude
Does severence pay count as wages?
Yup, it does. The severence pay will be included in the W-2 form as part of gross wages.
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Re: Too much income to take Social Security this year
Old 10-02-2006, 03:46 PM   #4
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Re: Too much income to take Social Security this year

Quote:
Originally Posted by Elderdude
Does severence pay count as wages?
Yes

Quote:
Originally Posted by Elderdude
Can someone point me to the appropriate non-legaleese, government gobble-de-gook explanation.
No, not exactly. But there is this...

Q. With businesses downsizing, are there special rules for reporting severance pay?

A. Severance pay, which is defined as an allowance usually based on length of service that is payable to an employee upon termination of employment, is taxable and subject to income tax withholding and Social Security and Medicare taxes.

A lump-sum payment for cancellation of an employment contract is income in the tax year the employee receives it and must be reported with his/her other salaries and wages.
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Re: Too much income to take Social Security this year
Old 10-02-2006, 04:16 PM   #5
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Re: Too much income to take Social Security this year

Assuming that her severence payments last 26 weeks after her job ends, would her Social Security checks be docked or eliminated? If they took back $1 for every $2 she received from Social Security, wouldn't she still receive more applying when she was severed than if she delayed taking Social Security until after the severence checks stopped?
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Re: Too much income to take Social Security this year
Old 10-02-2006, 04:21 PM   #6
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Re: Too much income to take Social Security this year

Quote:
Originally Posted by Elderdude
Assuming that her severence payments last 26 weeks after her job ends, would her Social Security checks be docked or eliminated? If they took back $1 for every $2 she received from Social Security, wouldn't she still receive more applying when she was severed than if she delayed taking Social Security until after the severence checks stopped?
http://www.ssa.gov/pubs/10069.html#special
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Re: Too much income to take Social Security this year
Old 10-02-2006, 04:28 PM   #7
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Re: Too much income to take Social Security this year

The amount you make in the the first year you collect SS is irrelevant. It's only the amount you earn after you start receiving SS. There is a special monthly rule that applies for the first year for people who retire during the year. It is explained here:

http://www.ssa.gov/pubs/10069.html#special

It seems to me that so long as she didn't receive more than $1040 per month after starting SS, she would avoid being "docked" $1 of SS for every $2 earned. Could she get the company to give her part of her severance in a lump sum, so that her monthly earnings remain under $1040?
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Re: Too much income to take Social Security this year
Old 10-02-2006, 05:00 PM   #8
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Re: Too much income to take Social Security this year

Wahoo and Fired,
I just found that section. Unfortunately, the wife's sister and husband are unwilling to share real numbers with me, so it is difficult to deal with more than the general rules. Since she was told she was "disqualified," I assume her severence monthy pay was above that $1040 amount.

When they originally asked me about it, they hadn't said anything about a 26 week severence package. I retired in roughly the same month she was severed and began receiving retirement checks the following month and had no problem with the "first year" rules based on earnings for the year. However, it appears that her severence pay is treated as if she is continuing to work.
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