A classic case of the government giveth and the government taketh away.

One of the most common web-search phrases entered is this: “Is social security taxable”? The answer: It all depends on your income and filing status. If you file taxes as an individual and your combined income — that’s your adjusted gross income plus one half of your annual Social Security benefit — is less than $25,000, you won’t pay federal income taxes on your benefits.

But once you get past that $25,000 mark, that’s when you start seeing taxes. People who earn between $25,000 and $34,000 could have up to half of their benefits taxed, and people Read More

One of the tax options given to a minister is the ability to opt out of social security. This is a step that should be taken after a great deal of deliberation, as the decision is irrevocable. In order to opt out, the minister must file Form 4361 and certify that he or she opposes, either conscientiously or because of religious principles, the acceptance of any public insurance (with respect to services performed as a minister), including social security and Medicare coverage. Note that the objection is to the use of ministerial earnings for public insurance. Economic considerations or other non-religious reasons are not valid factors for opting out. Unfortunately, many likely opt out for economic reasons. Some faith groups actively promote opting out for their ministers.

The minister opts out only in relation to ministerial earnings. If he or she is employed in a Read More

We were attending a dear friend’s daughter’s engagement when this thought occurred to me that most newly weds don’t think of the change in their Tax Filing Status till Tax Time. Yes, blame it on my tax “nerd”i-ness!! I don’t mean to burst the newly wed pink bubble, but these are important things to remember!

Now that DOMA, Section 3 has been over-turned by the Supreme Court as well, there’s even more details to keep in mind.

Here are several tips for newlyweds from the Internal Revenue Service:

• It’s important that the names and Social Security numbers that you put on your tax return match your Social Security Administration records. If you have changed your name, report Read More

TaxConnections Picture - SSN and PassportUnited States Social Security and Medicare taxes continue to apply to wages for services performed as an employee working outside of the United States if you are working for an “American employer”. Similarly, if you are abroad and you are a self-employed US citizen or resident you generally are subject to the so-called “self-employment tax”. Self employment tax is a social security and Medicare tax on net earnings from self-employment. You can learn more about Self employment tax when working abroad from my blog post here on TaxConnections.

Many questions arise about US social security when one is working overseas. Some of these questions are: If you are working for an American employer, do you have to pay tax to both the US and the foreign host country’s social security systems? What happens if you are employed overseas but you are neither self-employed nor working for an American employer? If you do not have enough credits under the US social security system to qualify for benefits, does your work overseas “count” for purposes of US eligibility? If you already have enough credits under the US system to qualify for benefits, what happens with your foreign social security benefit credits — does the US count your foreign social security credits toward your US coverage?

Learn the answers in today’s blog posting.

Totalization Agreements

The US has negotiated international Social Security agreements, called “Totalization agreements,” with 24 countries. See the list here. Totalization agreements achieve two main goals: The first goal is to eliminate the possibility of Read More

iStock_Elderly Pig SS CardXSmallStart with the previous post about the basics of Social Security.  Now that’s out of the way, let’s go over some of the extra complexity when you have a spouse.  One of the most overlooked and unknown aspect of Social Security is the spousal benefit.

If your spouse is at full retirement age (66), they are eligible for their full retirement benefit or 100% based on their work history.  Sometimes both spouses have been working and paying in a similar amount to Social Security so their benefits are similar.  Other times one spouse has been working while the other one either did not work or was paying in much less to Social Security because they had a lower paying job.  This can lead to some large discrepancies in the full retirement benefit.  Bill Johnson’s Social Security benefit might be $40,000 per year, but if his wife Barb hasn’t worked as much, her retirement benefit might be only $16,000.

The spousal benefit would allow Barb the option of claiming her $16,000 benefit at age 66 or 50% of her husband’s full benefit, which would be $20,000 (50% of his $40,000).  That spousal benefit is going to add $4,000 a year to her Social Security benefit for the rest of her life.  That certainly seems nice, but wait, there is more.  At age 66, Barb can claim her spousal benefit and receive the $20,000 per year.  She will collect $80,000 by age 70.  When she Read More

iStock_Social Security CardsXSmallThere is a lot to consider when deciding when to take your Social Security, but let’s start off with the basics.  Every year you get a statement from Social Security that tells you what your benefit will be when you retire.  Full retirement age is currently 66, but forty years from now I assume it will be much higher for me.  The statement will tell you the benefit is $20,000 (depending on your earnings history) when you are 66 years old.

But there are choices, so many choices to be made.  If you claim Social Security early (before you are 66) you get a smaller amount.  If you claim when you are 62 years old, you get 75% of the full amount which would be $15k a year in this case.  If you claim at 63 it’s 80%, 64 it’s 87% and at 65 it’s 93% of the full value.

Taking your Social Security early will pay off if you are planning on getting hit by a bus at your 71st birthday party, but if you are planning to live to 100 it probably won’t work out well.  Another choice is to claim the Social Security later at 67, 68, 69 or 70 years old.  For every year you wait after 66, you get an additional 8%.  Meaning if you wait until 70 years old, you get 132% of the full value every year for the rest of your life.  $26,400 instead of $20,000 a year is a big difference and over the long haul you will come out ahead. Read More