January, 2024

January update: Making Sense of Taxes and Social Security

Social Security Spotlight: Taxation
RSSA | Monthly Newsletter | January 2024
January 2024 Newsletter


Hi there. Please enjoy reading our newsletter filled with news and information on Social Security and retirement. Please reach out at info@rssa.com with any feedback on our newsletters. We are always happy to hear from you!


RSSA Announcements  

We are excited to announce our new Integrity partners who have trusted us to provide their agents with Social Security planning education and training. We look forward to what will come of these exciting new collaborations!


Top Stories  

Source: RSSA
Tax season officially begins next week on January 29th and it’s crucial to be aware that your Social Security income may be subject to both federal and state taxation. Referred to by some as the Social Security “stealth” tax, many individuals are unaware of this potential tax implication and fail to incorporate it into their financial planning. Read the story and see the ten states that tax Social Security. 
Source: Forbes
“Getting approved for Social Security disability can be tough. On average, only 30% of claims are awarded in this program. To encourage people to return to work after going through this arduous claims process, Social Security offers several incentives and policies. One of these is the five-year rule, also known as the expedited reinstatement process.” Read the full article.



Ask Martha  

Question: I am divorced born after 1954, and was married for more than 10 years. My ex-spouse has remarried while I have not, and while I do have some earnings to claim, claiming as an ex-spouse will provide the higher estimate. My concern is that while I have reached FRA, my ex-spouse won’t for another two years and hasn’t starting claiming yet. How can I evaluate my options by claiming now versus waiting 2 years until my ex spouse reaches FRA?
Martha’s response: The good news is that once you have been divorced for over 2 years, you are “independently entitled” to the ex-spousal benefits even if your ex has not started collecting retirement benefits yet. Ex-spousal benefits do not increase any higher than if claimed after your FRA, however your own retirement benefit will still increase from delayed retirement benefits up until age 70. So, if you have been divorced for over two years (or as soon as you are), you can file for benefits, including…Read the full response.
Question: My client is 60 years old. Social Security at age 62 years is $900 month. He owes child support to state. Will they garnish his Social Security check? How much of it?
Martha’s response: Yes, the Social Security Administration is allowed to withhold current and continuing Social Security payments to enforce one’s legal obligation to pay child support, alimony, or restitution…Read the full response.


Listen up: Social Security Podcast

In this episode, Martha sits down with Mark Miller and they explore his wealth of knowledge as concerns Social Security and retirement planning. Mark is a journalist, author and podcaster specializing in coverage of retirement and aging. He contributes regularly on retirement to The New York Times and he writes columns for Reuters and other publications. In this episode Mark addresses some of the most common misunderstanding that he sees people having related to Medicare and Social Security.
You can listen to Social Security Answers from the Experts on Spotify, Google, Apple or anywhere you listen to podcasts. You can even watch the live recordings on our YouTube channel. Listen here or watch on YouTube.


Social Security Spotlight: Taxation  

Are Social Security benefits subject to taxation? Yes. Many people are unaware of this, but Social Security income may be subject to federal, and possibly even state, taxation.

How is Social Security taxed? Federal taxation does not apply to all Social Security beneficiaries as there is a special calculation used to determine if your Social Security income will be taxed. If your “combined income” exceeds a specific threshold, a portion (up to 85%) of your Social Security income will be taxed. These thresholds vary depending if you are a single filer or joint filer.

What are the thresholds that determine if your Social Security will be taxed? Up to 50 percent of your Social Security benefits are subject to federal taxation if your income is $25,000 to $34,000 for an individual or $32,000 to $44,000 for a married couple filing jointly. Up to 85 percent of your benefits are subject to federal taxation if your income is more than $34,000 for a single filer or $44,000 for joint filers.

Which states tax Social Security income? As of 2024, only 10 states have a Social Security income tax. These states include Colorado, Connecticut, Kansas, Minnesota, Montana, Nebraska (phasing out by 2025), New Mexico, Rhode Island, Utah, and Vermont. States have unique rules and therefore, not all residents are subject to this taxation.

Learn more about the taxation of Social Security here.



Case Study of the Month  

Edna has been collecting Social Security benefits for the past 3 years. She has not been having any taxes withheld from this payment and has owed a small amount each year. This year, she must begin taking required minimum distributions (RMDs).

Is the taxation on her Social Security income expected to go up or down this year?
She will most likely have a higher taxable income due to the RMDs, and thus a larger portion of her Social Security income will likely be taxable.

From a Social Security perspective only, how can you help this client?
Using her estimated AGI, benefit, and non-taxable interest, determine her Combined Income and the amount of taxation she can expect on her benefits. Then, she can file Form W-4V to request the appropriate tax withholding.


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