Can your program distinguish social sec benefits not being taxed during 1st year when someone earns income first six months, not after they begin receiving benefits?

[rbarn3375]

We were told by Social Security that during the first year of retirement, our benefits would only be subject to taxes after we retired. In other words, Jan - June would not count toward the amount permitted to be earned for the year. July - December would only count if we earned more that the monthly amount allowed. We did not earn income after July 1. How do I enter this into TurboTax?

[SteamTrain · Accepted solution]

TTX handles it quite well...but you're misinterpreting what SS said.

Your SS is still subject to Income taxes the first year...it's just that...if you are under full retirement age, SS will not reduce your SS monthly benefits during that first year.  That's something else entirely..

"Special rule for the first year you retire Sometimes people who retire in mid-year already have earned more than the annual earnings limit. That’s why there is a special rule that applies to earnings for one year,  usually the first year of retirement. Under this rule, you can get a full Social Security check for any whole month you’re retired, regardless of your yearly earnings."

(page 4:  https://www.ssa.gov/pubs/EN-05-10069.pdf)

Nothing special to do that first year, you just put in all your income and your SSA-1099, and then SS will later get their own copy of what you filed.

But if you are still below full retirement age the next year (and continue working), you do need to talk to SS about that because they may need to reduce your monthly SS payout for that next year....or the next according to how much you are earning that year  (Meaning W-2 or self-employment income)

____________________________

[rbarn3375]

Thank you! Not the answer I was hoping for, however, I understand this better now.

[Sabber321]

So it would'nt have mattered if I had worked the whole year, I could have gone on social security half way through the year and continued on working and just counted it as part of my income and than quit at the end of the year that way i wouldnt be subject to my social securty being reduced the next following year for going over their limit they have set does this sound right

[RobertB4444]

That is exactly what @SteamTrain is saying.

[Opus 17]

---

@Sabber321 wrote:

So it would'nt have mattered if I had worked the whole year, I could have gone on social security half way through the year and continued on working and just counted it as part of my income and than quit at the end of the year that way i wouldnt be subject to my social securty being reduced the next following year for going over their limit they have set does this sound right

---

I don't know if your situation is the same as the original poster, which was more than 2 years ago.

There are two items that some people get confused.

1. Social security benefits are always taxable, no matter your age, if your non-social security income meets the threshold for taxing of benefits.  See here.

https://www.irs.gov/newsroom/dont-forget-social-security-benefits-may-be-taxable

2. The Social Security Administration (not the IRS) will reduce your benefit if you work after declaring retirement, unless you are over your full retirement age.  You will also pay social security on your job income, no matter your age.  However, by paying more into the system, you may increase your future benefits.

If you declared in June, and kept working until December, then whether or not the Social Security Administration will reduce your benefit depends on your age.  If you are not full retirement age, you should have either waited to declare until you stopped working, or stopped working when you declared. If you are full retirement age, the Social Security Administration should not reduce your benefits no matter how much you work after declaring.  

https://faq.ssa.gov/en-US/Topic/article/KA-01921

[cactuspatchhill]

We were given the same information from Social Security in 2022: Only income earned AFTER benefits started would affect how much the benefits were taxable IN THE FIRST YEAR of receiving benefits. It is supposed to be pro-rated. ???

[ThomasM125]

All benefits are potentially subject to income tax, dependening on your total income. The timing of benefits may affect your future benefit amount, but they have no affect on your taxable income. @cactuspatchhill 

[VolvoGirl]

@cactuspatchhill   There are 2 different things to know about social security. People get them mixed up all the time.  

1. Your actual SS checks
If you are over full retirement age your actual SS checks won't be reduced. Otherwise they will actually reduce your payments if you make too much other income in the prior year.  There is a special first year rule.

See What happens if I work and get Social Security retirement benefits?https://faq.ssa.gov/en-US/Topic/article/KA-01921

See page 5 for the special first year rule
https://www.ssa.gov/pubs/EN-05-10069.pdf

2. Income Tax, even the first year
For any age up to 85% of Social Security becomes taxable when ALL your other income plus 1/2 your social security reaches:
Married Filing Jointly: $32,000
Single or head of household: $25,000
Married Filing Separately: 0

[VolvoGirl]

Found the first year link.    First year special rule.  It doesn't say anything about not being taxed.  Just if your SS payment will be reduced or not.  
https://faq.ssa.gov/en-US/Topic/article/KA-01927?msclkid=11bc282ccf2211ecb65078152b05ae6b

[Opus 17]

@cactuspatchhill 

Again, as in the above comments , you are getting a couple of things mixed up.  

1. If you are less than full retirement age, and you keep working you begin taking benefits, your benefits will be reduced based on how much you work. There is a special rule if you start taking your benefits in the middle of the year, so that your later benefits are not reduced by your earlier work.  This has nothing to do with how much income tax you pay on your benefits, and it only concerns income earned from working, not other kinds of nonwork income.

2. Your benefits are tax-free if they are your only income. If you have any other income from any source, including work, pensions, or something else, your benefits may be taxed based on the amount of your other income.  There are no special rules for the first year of taking benefits, the calculation is strictly based on your total income.

So it is certainly possible that if you begin taking benefits late in the year, your benefits will be taxable, even though they might not be taxable in following years when you have lower total income.