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  1. #1
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    May 2015
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    Default Types of Income Included in Early Retirement Income Limits

    Are capital gains, interest income, and/or rental income allowed in unlimited amounts before there is a reduction in SS bennies? Also, is the total of income used to determine "earnings" calculated on amounts before or after deducting medical insurance premiums? Above all, are income limitations based on an individual's income or a household's income? We are talking about a married couple, always filing jointly. Husband is 69, and already drawing; wife is 63.

  2. #2
    Join Date
    Mar 2013
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    Default Re: Types of Income Included in Early Retirement Income Limits

    There are two issues involved in that question: Reduction of SS retirement benefits and taxability of SS retirement benefits.

    For you, at age 69 (actually since age 66 I think) there is no reduction in retirement benefits regardless of how much you earn from any source.

    However, you could pay taxes on your SS retirement benefits if your earnings from any sources exceed a certain amount. According to the 2015 handbook you'll pay taxes on your benefits if you and your spouse have a total income from all sources that is more than $32,000.

    As for your wife, if she wants to start collecting retirement benefits early and keep on working her benefits could be reduced depending on the amount of her income from employment and also be taxable.

    You can learn all about that stuff by reading the SS benefit guide at:

    https://www.ssa.gov/pubs/EN-05-10077.pdf

  3. #3
    Join Date
    May 2015
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    13

    Default Re: Types of Income Included in Early Retirement Income Limits

    Thank you. I actually did read that publication a while back. The thing is: what constitutes earnings? We have capital gains from a land contract on selling some acreage. We have modest income from our farm and a small business, with quite a lot of depreciation yet to use, so that makes it even more modest. We have always filed jointly at 50% each, as we work together at everything. Now I am able to get Medicare, so just have a supplemental at a couple hundred a month. She pays 1100/mo for insurance. Our gains and interest would put us over the "earnings" cap, but we'd be under it with just the net on farm & business income, especially if her earnings half was then reduced by the thousands in insurance.

    We have no problem paying income tax on SS, at least no more than on any other income, lol. I just always thought the ceilings were on all household income totals of any stripe. Then, the other day, someone said that it was just based on individual income of certain types of earnings. Personally, I think total household income would be a better idea, since early benefits are a bit too generous. But it got us to thinking, so I tried looking into it. Her health is not good; otherwise, we wouldn't be concerned.

    Added info: Additionally, it appears that my SS would not be counted against her limits, if Sam goes by individual vs. household totals.

  4. #4
    Join Date
    Jan 2009
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    California
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    1,045

    Default Re: Types of Income Included in Early Retirement Income Limits

    "Earnings" for Social Security Earnings test are wages and self-employment income. The income that you pay FICA taxes on. W-2's are issued for wages. Self-employment is computed on Schedule C and Schedule SE when income taxes are done. Self-employment is for a business; child care, lawn services, handyman are few examples of small businesses. Self-employment also refers to farmers, truckers, plumbers, lawyers, accountants, store owners. Larger businesses tend to be incorporated or partnerships.

    Capital gains, interest, most rental income is non-wage, non-earned income and do not affect Social Security benefits even though they may be subject to income taxes. Social Security benefits can be subject to income tax. Wages and self-employment can be subject to income tax.

  5. #5
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    Mar 2013
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    Default Re: Types of Income Included in Early Retirement Income Limits

    Quote Quoting fair
    View Post
    Thank you. I actually did read that publication a while back. The thing is: what constitutes earnings? We have capital gains from a land contract on selling some acreage. We have modest income from our farm and a small business, with quite a lot of depreciation yet to use, so that makes it even more modest. We have always filed jointly at 50% each, as we work together at everything. Now I am able to get Medicare, so just have a supplemental at a couple hundred a month. She pays 1100/mo for insurance. Our gains and interest would put us over the "earnings" cap, but we'd be under it with just the net on farm & business income, especially if her earnings half was then reduced by the thousands in insurance.
    That paragraph ONLY involves taxation of your social security benefits.

    How you determine the tax on your SS benefits is by filling out the Social Security Benefits worksheet which is found on Page 30 of your 1040 instruction booklet. Look at the worksheet now:

    https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

    Line 3 of the worksheet is income. You combine the amounts from Form 1040, lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21.

    Now look at the Form 1040:

    https://www.irs.gov/pub/irs-pdf/f1040.pdf

    When you look at lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21, it should be clear that ALL of the income items you listed are factored into the tax on your social security benefits.

    If you haven't done your 2015 taxes yet, take a look at your 2014 tax return. I'm guessing you had a tax pro prepare it and you got a copy along with all your supporting documents and worksheets. Take a look at and you should be able to find a similar worksheet for 2014 where you can compare the total on line 3 of the worksheet with the lines on the Form 1040 and see how the taxable amount of your SS benefit was arrived at.

    Again, we are not talking about any reduction in SS benefits due to income because, at your age, that doesn't apply.

  6. #6
    Join Date
    Oct 2006
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    16,377

    Default Re: Types of Income Included in Early Retirement Income Limits

    Quote Quoting adjusterjack
    View Post
    There are two issues involved in that question: Reduction of SS retirement benefits and taxability of SS retirement benefits.

    For you, at age 69 (actually since age 66 I think) there is no reduction in retirement benefits regardless of how much you earn from any source.
    Her husband is 69, she is 63 so yes she would be limited in how much that she can personally earn.

    However, you could pay taxes on your SS retirement benefits if your earnings from any sources exceed a certain amount. According to the 2015 handbook you'll pay taxes on your benefits if you and your spouse have a total income from all sources that is more than $32,000.
    Slightly wrong. The calculation is that 1/2 of your social security benefits plus all of the rest of your other income must be under 32,000 or SS benefits start to become partially taxable, and above 44,000 before they max out at 85% taxable. Its 25k and 33k if you are single.

    As for your wife, if she wants to start collecting retirement benefits early and keep on working her benefits could be reduced depending on the amount of her income from employment and also be taxable.
    I think its the wife posting...but I could be wrong. However, her earnings have to be less than about 15k annually or her benefits reduce 1 dollar for every two dollars above approx. 15k. Its likely her benefits would be at least partially taxable but its not guaranteed without doing the overall calculation.

    You can learn all about that stuff by reading the SS benefit guide at:

    https://www.ssa.gov/pubs/EN-05-10077.pdf
    That is an excellent resource if read thoroughly.

  7. #7
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    Mar 2013
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    Default Re: Types of Income Included in Early Retirement Income Limits

    Quote Quoting llworking
    View Post

    I think its the wife posting...but I could be wrong.
    You had me scratching my head there for a minute but I looked back at the discussion and there are a couple of indications that it's the husband posting:

    "Now I am able to get Medicare, so just have a supplemental at a couple hundred a month. She pays 1100/mo for insurance."

    Quote Quoting llworking
    View Post

    However, her earnings have to be less than about 15k annually or her benefits reduce 1 dollar for every two dollars above approx. 15k. Its likely her benefits would be at least partially taxable but its not guaranteed without doing the overall calculation.
    OTOH, it does appear that the question involves her taking early benefits at age 63 so the reduction in her benefits due to her earnings would apply.

    To repeat the distinction. The reduction of benefits involves earnings from employment (or self employment) and the taxability of benefits involves income from all sources.

  8. #8
    Join Date
    May 2015
    Posts
    13

    Default Re: Types of Income Included in Early Retirement Income Limits

    The only question I was pondering was just what income was involved in calculating the ~ 15000 ceiling. I now gather it is only the wife's income that is subject to FICA taxation, whereas I previously thought it would be ALL household income, since I always viewed early retirement benefits to be essentially welfare with lipstick, so disbursed as a matter of household need. So, thanks for that heads up.

    We file complicated taxes every year (although a joke after seeing the picture of The Donald with his three or four foot stack,) understand that some SS is taxable income, and have no issues there.

  9. #9
    Join Date
    Oct 2006
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    16,377

    Default Re: Types of Income Included in Early Retirement Income Limits

    Quote Quoting adjusterjack
    View Post
    You had me scratching my head there for a minute but I looked back at the discussion and there are a couple of indications that it's the husband posting:

    "Now I am able to get Medicare, so just have a supplemental at a couple hundred a month. She pays 1100/mo for insurance."



    OTOH, it does appear that the question involves her taking early benefits at age 63 so the reduction in her benefits due to her earnings would apply.
    Only if her earnings exceed the limits.

    To repeat the distinction. The reduction of benefits involves earnings from employment (or self employment) and the taxability of benefits involves income from all sources.
    That is a good way to put it. I will also add that if earnings are going to significantly exceed the limits then its a bad idea to take early SS benefits. That locks one into the lower rate for the long haul, and there is no point in doing that if the benefits are going to be significantly reduced by employment.

    I am getting the impression that the OP is exploring his wife collecting early retirement to help bring in more income to help cover the cost of her insurance. She has less than two years until she qualifies for medicare. Perhaps a better analysis to make is how healthy is she? Has she had a full physical lately? If she is very healthy then maybe a high deductible policy with an HSA would be better than what she has now? Or perhaps a Bronze level policy on the Obamacare exchange? Some very healthy people might even gamble with no insurance for the under two years she has left until she qualifies for medicare. Yes, there is a tax penalty for not having insurance but for people in that age bracket there are not many who wouldn't qualify for the affordability exemption based on the cost of insurance when you are in your sixties.

    Some unhealthy people have even chosen to divorce and then "live in sin" so that one of them qualifies for subsidies on the Obamacare exchange.

    The point I am making is that a cost analysis needs to be done...and decisions made based on that cost analysis. So many people pay for high cost insurance that do not really need it...there are less expensive alternatives. Yes, those alternatives come with a risk if something disastrous happens, but that is where someone's actual health comes into play.

  10. #10
    Join Date
    May 2015
    Posts
    13

    Default Re: Types of Income Included in Early Retirement Income Limits

    Yes, the issue is whether the wife could/should go for early bennies. She is not in good health, FTR.

    Wild horses could not drag her to Obama's exchange, period. We have a farm worth maybe a million and a half (bought with blood, sweat and tears, not inherited), which cost us far, far less than we have paid in medical insurance over the years. The thing was: if one became ill, there was a chance it couldn't be purchased. That's the way it used to be, when it really was insurance, lol.

    Thanks to all.

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