Severance after retirement and social security

[Rseandoyle]

I retired Sept 2022. I received 6 months severance paid out Sep 2022 thru Mar 2023. I received a 2023 w2 which reported the 3 month Jan-Mar 2023 portion of the severance. I started taking social security in 2023. According to the SSA, these payments should not be included when calculating the part of social security that is taxable. How do I do this in Turbo Tax?

[VolvoGirl]

No you misunderstand.  All you income counts to make SS taxable.

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.  See SS FAQ for working after retirement

https://www.ssa.gov/planners/retire/whileworking.html

And see the special first year rule

KA-01927

And Benefits Planner: Retirement | Special Earnings Limit Rule | SSA

2. Income Tax

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

[Rseandoyle]

Thanks for your reply. My confusion stems from the income paid out in 2023 was for severance before I retired. According to the SSA, this qualifies as a “special payment” to be excluded from SS tax calculations:

 https://www.ssa.gov/pubs/EN-05-10063.pdf

Am I missing something?

[VolvoGirl]

Yes that is the special first year rule.  Were you younger than your full Social Security retirement age?  Then the income wont affect how MUCH Social Security payments you get. Otherwise they will actually reduce your payments if you make too much other income.  

But it doesn't affect the tax on your total income or how much of your SS is taxable.  

[Rseandoyle]

Got it! Thanks again.