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Taxes on early retirement benefits
Dear Tax Talk:
We have been trying to decide if my husband should take Social Security
benefits at age 62. He receives a small pension ($200 a month) from
a previous job, and we are unsure if this $2,400 a year counts toward
the $12,000 a year he is allowed to earn while collecting Social
Security.
Our second question pertains to taxes. I read that
Social Security benefits are taxed after $9,000 for a single person
or $12,000 for a married person filing jointly. Does that apply
only if both husband and wife are collecting benefits, or is it
for any married couple even if one spouse is still working?
Thanks in advance,
Lee
Dear Lee:
Early retirement benefits are still available in the year you turn
62. In 2002, you can earn up to $11,280 (the amount goes up every
year for inflation) without reducing your early retirement benefits.
If you earn more than this, your early retirement benefits are reduced
by $1 for every $2 you earn above this limit.
Only earnings from employment are counted. Money you
receive from the other pension don't reduce your husband's benefits,
and of course your earnings don't affect his benefits either. If
you don't collect early benefits because you exceed the earnings
limit, the amount is not lost forever as it increases what you will
get later.
The law changed two years ago so individuals can have
unlimited
earned income after age 65 and not have their Social Security
benefits reduced.
As for federal income taxes on your Social Security
benefits, the numbers actually are higher than those you refer to
before you face possible taxation. The figures you cite are just
a part of the computations you must make on tax worksheets to figure
your final taxable Social Security amount.
When all the calculations are done, you may have to
pay taxes on up to 50 percent of your husband's benefits if you
have a combined income on your joint tax return of $32,000 to $44,000.
If your combined income is over $44,000, you may have to pay taxes
on up to 85 percent of his Social Security benefits. In figuring
if you reach these thresholds, count all income, including tax-exempt
interest and half of Social Security benefits.
-- Posted: Nov. 12, 2002
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