What is the maximum *possible tax rate on SS benef

[amt]

The following is a quote from Dallas Morning News

http://www.dallasnews.com/sharedcont...ire.7a98c.html

"Financial advisers have a warning for those who receive Social Security and continue to work: The tax collector never retires.

If your outside income is high enough, it can trigger taxes on your Social Security benefits.

Half of your benefits are taxed when income exceeds $25,000 for single taxpayers or $32,000 for married couples. If income exceeds $34,000 or $44,000, then up to 85 percent of Social Security benefits will be taxed.

In the most extreme case, of every additional dollar you earn at your post-retirement job, 50 cents goes straight to Uncle Sam. "



Could someone explain to me how the federal tax can be 50%, while the max marginal tax rate is 35%?

[unclemick]

The operative word is 'additional' dollar or some say your marginal tax rate.

Lumped together - all your tax dollars can't go above the max rate.

Another way - is to look at your total tax bill under different options. BTY - the state(LA here) may look at dollars differently - depending on the source. Military, public pensions, certain types of div.'s, etc, etc. My state income is always higher than my Federal - tax wise.

[retire@40]

Quote:

In the most extreme case, of every additional dollar you earn at your post-retirement job, 50 cents goes straight to Uncle Sam. Could someone explain to me how the federal tax can be 50%, while the max marginal tax rate is 35%? *

Sounds like another one of those "liberal" scare tactics from newspaper reporters that don't know the first thing about taxes.

The most extreme case I can think of is if you are self-employed. In that case, if you are in the highest tax bracket of 35%, you are also paying self-employment taxes of about 15%, therefore bringing you to the 50% mark. However, that's not the WHOLE truth. The truth is that once you hit the social security cap of $87,900, you stop paying all social security taxes. So there is NEVER a point where any marginal dollars are taxed at BOTH the highest federal tax rate of 35% AND the full self-employment max rate of 15.3%.

I pay no federal income tax at any level. Although
I did not see this before I ERed, with a little planning
and a lot of cutting back on your lifestyle, it is really not that hard. Keeping money out of the feds hands
is priceless since in my view, they will just waste it or worse, use your money to promote useless/dopey
programs.

John Galt

[notTwain]

When I reach my 87k it feels like a big raise that is my bonus for sticking it through almost a year. Then the year begins, and I start thinking, "now I can just start maximalizing (sic) my 401K to a market not moving - and the cycle begins. Nonetheless, it still feels like a year end raise.

notTwain

[MJ]

Quote:

The following is a quote from Dallas Morning News http://www.dallasnews.com/sharedcont...ire.7a98c.html "Financial advisers have a warning for those who receive Social Security and continue to work: The tax collector never retires. If your outside income is high enough, it can trigger taxes on your Social Security benefits. Half of your benefits are taxed when income exceeds $25,000 for single taxpayers or $32,000 for married couples. If income exceeds $34,000 or $44,000, then up to 85 percent of Social Security benefits will be taxed. In the most extreme case, of every additional dollar you earn at your post-retirement job, 50 cents goes straight to Uncle Sam. " Could someone explain to me how the federal tax can be 50%, while the max marginal tax rate is 35%?

I believe this will answer your question. This comes from SSA

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

How much can you earn and still get benefits?

If you work and are full retirement age (age 65 and 4 months in 2004) or older, you may keep all of your benefits, no matter how much you earn. If you are younger than age 65 and 4 months all year, there is a limit to how much you can earn and still receive full Social Security benefits. If you are younger than age 65 and 4 months in all of 2004, we must deduct $1 from your benefits for each $2 you earned above $11,640.

If you turn 65 and 4 months during 2004, we must deduct $1 from your benefits for each $3 you earned above $31,080 until the month you turn 65 and 4 months.
These examples show how the rules would affect you:

Let us say that you begin receiving Social Security benefits at age 62 in January 2004 and your payment is $600 per month ($7,200 for the year). During the year, you work and earn $20,000 ($8,360 above the $11,640 limit). We would withhold $4,180 of your Social Security benefits ($1 for every $2 you earn over the limit), but you would still receive $3,020 in benefits.

Or, let us say you were age 64 at the beginning of the year, but reach full retirement age (currently 65 and 4 months) in August 2004. You earned $33,000 in the seven months from January through July. During this period, we would withhold $640 ($1 for every $3 you earned above the $31,080 limit). You would still receive $3,560 of your Social Security benefits. And, starting in August (when you reach 65 and 4 months), you would begin receiving your full benefits, no matter how much you earn.

MJ

[Roger_R]

This is a little bit of a new twist that I had never thought of. Let's say you are 62 and receiving $10k from a pension plan and another $15k from interest and dividends. Then you would be better off if you could afford it to delay SS until 65? There is probably a little bit of comlicated math, but that's how I'm reading the basics?

[newellcr]

Roger R,

Using the link Unclemick provided,

"What income counts...and when do we count It?
If you work for someone else, only your wages count toward Social Security's earnings limits. If you are self-employed, we count only your net earnings from self-employment. We do not count income such as other government benefits, investment earnings, interest, pensions, annuities and capital gains."

It looks like those streams of income don't count against you.

Chris

[retire@40]

mj,

The rules you posted talk about the reduction of benefits which is correct but doesn't answer the original question posted. The article (or at least the part quoted by the poster) only talks about the taxation of benefits and the taxation of earned income.

If the article had been written with the information you provided from the Social Security website, it would have made a lot more sense. But the article was probably written by a reporter with little or no understanding of the tax laws and attacks the issue from a tax angle and comes to a false conclusion.

[retire@40]

Quote:

Roger R, Using the link Unclemick provided, "What income counts...and when do we count It? If you work for someone else, only your wages count toward Social Security's earnings limits. If you are self-employed, we count only your net earnings from self-employment. We do not count income such as other government benefits, investment earnings, interest, pensions, annuities and capital gains." It looks like those streams of income don't count against you. Chris

Again, don't confuse the reduction of benefits with the taxation of benefits. The above quote relates to the reduction of benefits. The original poster talks about the taxation of benefits.

[retire@40]

Quote:

This is a little bit of a new twist that I had never thought *of. * Let's say you are 62 and receiving $10k from a pension plan and another $15k from interest and dividends. *Then you would be better off if you could afford it to delay SS until 65? *There is probably a little bit of comlicated math, but that's how I'm reading the basics?

Why would you be better off? To stay on the topic of this thread, say the above is true and you and your wife each get $10K in social security benefits. You would only be taxed on $1500 worth of social security benefits. From some quick math, I get a total overall tax of about $700 on all your combined income for the year which translates to a 1.6% tax.

So would you still wait?

[Roger_R]

At least my original assumption was thinking that I would have reduced benefits from interest and pension income, which appears no to be the case. I'm not sure beyond that if there are overriding benefits either way with taxes. I think probably the bigger issue might be the differences in SS payments at 62 vs 65.

Acutally, I think without any huge differences either way, I would take payments starting at 62 just from a philosophy standpoint of not knowing how long I might live or have a healthy active lifestyle, and trying to take income sooner rather than later.

[retire@40]

Quote:

Acutally, I think without any huge differences either way, I would take payments starting at 62 just from a philosophy standpoint of not knowing how long I might live or have a healthy active lifestyle, *and trying to take income sooner rather than later. *

I agree. One major stumbling block to this would be health care costs between age 62 and 65, so that is the major issue I would be concerned about.