topic Early Retirement SS Benefits and Subsequent Tax on Winfalls / Lottery Winnings in Retirement tax questions

Early Retirement SS Benefits and Subsequent Tax on Winfalls / Lottery Winnings

vincentprtt — Mon, 26 Oct 2020 22:56:57 GMT

I reside in NY, not that I think that matters very much for this question. I am 62 and recently began early retirement social security benefits.

Indulge me with my fantasy question:

My understanding is that from my current age until I reach the [current] regular retirement age of 67, I can earn up $14K which would be taxed as ordinary income, but beyond that I am taxed at $0.50 on the dollar.

So how would I be then be taxed if I won now Publisher Clearing House or Powerball jackpots?

🙂

Re: Early Retirement SS Benefits and Subsequent Tax on Winfalls / Lottery Winnings

VolvoGirl — Mon, 26 Oct 2020 23:20:19 GMT

They don't actually tax you. They reduce your actual Social Security checks the next year if you earn over the limit. Don't know how winnings factor into that or if it is just based on wages and earned income.

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

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

Re: Early Retirement SS Benefits and Subsequent Tax on Winfalls / Lottery Winnings

Critter-3 — Mon, 26 Oct 2020 23:35:09 GMT

Winning the lottery is not EARNED income so it doesn't affect your early SS benefits ... you get to keep every dollar .... however this will make those dollars up to 85% taxable.

Re: Early Retirement SS Benefits and Subsequent Tax on Winfalls / Lottery Winnings

Opus 17 — Mon, 26 Oct 2020 23:54:26 GMT

Earned income is income earned from performing work. Prizes, 401(k) withdrawals, and other payments not connected with work are not "Earned" income. Earned income is also subject to social security tax.

Until your full retirement age, having Earned income will reduce your social security checks. But, the earned income will also go on your earning record with the social security administration and may increase your future payouts, depending on your earnings history. Unearned income does not reduce your social security checks.

Separately, social security is tax-free if you have no other income or if your income is less than the threshold. Having any kind of income over the threshold will make your social security taxable, even though only earned income will reduce your payments.

Re: Early Retirement SS Benefits and Subsequent Tax on Winfalls / Lottery Winnings

xmasbaby0 — Tue, 27 Oct 2020 00:10:00 GMT

TAX ON SOCIAL SECURITY

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 2017 that limit was $16,920 —for 2018 it will be $17,040—for 2019 it will be $17,640— for 2020 it will be $18,240) 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.

To see how much of your Social Security was taxable, look at lines 5a and 5b of your 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 13 states that tax Social Security—Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. These states offer varying degrees of income exemptions, but four mirror the federal tax schedule: MN, ND,VT, and WV