First year claiming Social Security and working in same year

[ldruth61]

I am doing my taxes and IRS is including my income that I earned in the same year I started to receive SSB, but it was all earned prior to starting Social Secuity Benefits. There is supposed to be a first-year rule but clearly TT does not know this.  No where does TT never asks when you retired or started receiving SSB, so how does it know you received the wages prior to SSB?

Is there something I am forgetting to input on TT ?
It's really pissing me off. 

Thanks for the help

[xmasbaby0]

People get really confused when they start getting SS.   If you are not full retirement age, SS can reduce your benefits if you earn over a certain amount.  But they do not do that during the FIRST year that you transition from working to getting SS.  After that, if you are not full retirement age, they can reduce your benefit if you continue to work and earn over the limit.

None of that means that your SS is not taxable during the first year.   It is.   If you receive other income while receiving SS, your SS can be taxable.   If you were expecting SS to be "tax free" the first year, you were mistaken about how it works.

More:

Up to 85% of your Social Security benefits can be taxable on your federal tax return.  There is no age limit for having to pay taxes on Social Security benefits if you have other sources of income along with the SS benefits.  When you have other income such as earnings from continuing to work, investment income, pensions, etc. up to 85% of your SS can be taxable. 

 What confuses people about this is that before you reach full retirement age, if you continue working while drawing SS, your benefits can be reduced if you earn over a certain limit. (For 2019 it was $17,640— for 2020 it was $18,240; for 2021 it was  $18,960.  For 2022 it was  $19,560  —  for 2023 $21,240)  For 2024, $22,320.

After full retirement age, no matter how much you continue to earn, your benefits are not reduced by your earnings; your employer will still have to withhold for Social Security and Medicare.  If you work as an independent contractor then you will pay self-employment tax for Social Security and Medicare.

To see how much of your Social Security was taxable, look at lines 6a and 6b of your 2023 Form 1040

https://ttlc.intuit.com/questions/1899144-is-my-social-security-income-taxable

https://www.irs.gov/help/ita/are-my-social-security-or-railroad-retirement-tier-i-benefits-taxable

You need to file a federal return if half your Social Security plus your other income is $25,000 when filing single or head of household, or $32,000 when filing married filing jointly, $0 if you are filing married filing separately.

Some additional information:  There are 11 states that tax Social Security—Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont  These states offer varying degrees of income exemptions, but two mirror the federal tax schedule: MN and VT.

The tax laws for 2024 will change——for  tax year 2024 Missouri and Nebraska will no longer tax SS

[ldruth61]

I know SS is taxed if I have income after I start SS. I said my income was prior to starting SS. So, it should not be counted on first year. And as i said, on TT there is no where to indict that wages are received prior to SS, so how the hell do they even know when the wages are earned or that is is my first year?

Where on TT does it gather this information

[xmasbaby0]

Not sure what you have in mind when you are saying your SS should not be counted.  That is where you are confused.   Yes.....it is taxable income.  It counts.   Your benefits are just not going to be reduced for that year by SS by the other income you earned.    TT is not messing it up.  

[VolvoGirl]

Sorry it is 2 different things.  SS is taxed on ALL your income for the whole  year.  Nothing special for the first year SS.  The only special first year rule is for your actual SS monthly checks won't be reduced.  

First year special rule
https://faq.ssa.gov/en-US/Topic/article/KA-01927?msclkid=11bc282ccf2211ecb65078152b05ae6b

It doesn't say anything about the tax on it.  

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

[ldruth61]

my wages should not be counted as income prior to receiving SS. You seem to be missing something here.

My first year SS benefits should not be taxed since I had no income (wages from employment) after starting to receive them.

[VolvoGirl]

NO you are not understanding.  The tax on your SS checks is different than the first year rule.  

[ldruth61]

When they say reduced, they mean by being taxed not the actual check.

That's why there is a special rule that applies to earnings for 1 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.

How would they reduce your check every month if you are working? They would have no idea until you filed taxes

[ldruth61]

Hello

I am talking about the first year rule, not the fact that my SS will be taxed in future years If I go over the income limits

[xmasbaby0]

We have tried.....contact Customer Support.  Maybe they can explain to you.

To call TurboTax customer support

https://ttlc.intuit.com/questions/1899263-what-is-the-turbotax-phone-number

Customer support is available from 5 a.m. to 9 p.m. Pacific time

[BillM223]

"my wages should not be counted as income prior to receiving SS. " Not counted as income for tax purposes? This is simply not true. Perhaps you mean something else.

"My first year SS benefits should not be taxed since I had no income (wages from employment) after starting to receive them." This is not true either. Your SS benefits in the first year may or may not be taxed depending on other factors, like how much other income you had and how much SS you received.

Tell you what. Go look at these Social Security Administration websites and show us where it says what you are saying:

"What is the special rule about earnings in the first year of retirement?"

"Special Earnings Limit Rule"

@xmasbaby0

@VolvoGirl

[VolvoGirl]

"When they say reduced, they mean by being taxed not the actual check."  No they mean your actual monthly checks will be reduced.  They somehow know.  

SS says.... https://www.ssa.gov/benefits/retirement/planner/whileworking.html 

If your earnings will be more than the limit for the year and you will receive retirement benefits for part of the year, we have a special rule that applies to earnings for 1 year. The special rule lets us pay a full Social Security benefit for any whole month we consider you retired, regardless of your yearly earnings.

And see this  https://www.ssa.gov/benefits/retirement/planner/rule.html 

Neither of those links say anything about the taxability of your SS.  Just how much they will pay you regardless of the tax on it.  You can have tax withholding taken out or not to cover the tax.  

[VolvoGirl]

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@ldruth61 wrote:

When they say reduced, they mean by being taxed not the actual check.

That's why there is a special rule that applies to earnings for 1 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.

How would they reduce your check every month if you are working? They would have no idea until you filed taxes

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Yes regardless of your yearly earnings.  Which includes what you made before you started getting SS.

SS says  https://www.ssa.gov/benefits/retirement/planner/rule.html first paragraph.....

Some people who file for benefits mid-year have already earned more than their yearly earnings limit amount. We have a special rule for this situation.