SS earnings limit with unpredictable earned income

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vtMaps
Posts: 309
Joined: Tue Oct 14, 2008 12:05 pm
Location: central Vermont

SS earnings limit with unpredictable earned income

Post by vtMaps » Tue Oct 31, 2017 4:33 am

I am advising a friend who recently became widowed. She is 63. Her PIA is larger than that of her late husband. I have advised her to file for restricted survivor’s benefits with the intention of switching to her own retirement benefit at age 70.

One thing I can’t explain to her (because I don’t understand it myself) is how the earned income limitations will work. I understand that (before she reaches FRA) earned income above about 17k will cause a benefit reduction.

The part I don’t understand is how/when these benefit reductions occur. She has a part time job and is also self-employed. Her earned income is about 20k-25k per year. Her earned income is not the same from month to month, and to the extent that she runs a small business, she doesn’t even know how much she earned in a year until she does her taxes the next year.

How does SS figure out how much to reduce her benefits? What happens if her earned income is higher than expected and they don’t hold back enough benefits?

—vtMaps
The optimist proclaims that we live in the best of all possible worlds; and the pessimist fears this is true. --James Branch Cabell

Penguin
Posts: 537
Joined: Sat Mar 03, 2007 1:52 pm

Re: SS earnings limit with unpredictable earned income

Post by Penguin » Tue Oct 31, 2017 5:29 am

She must make a report of expected earnings at the beginning of the year and and annual report of earnings at the end of the year. Social security administration will calculate the reduction for excess earnings.
Check here:
https://ssa.gov/OP_Home%2Fhandbook/ ... toc18.html
especially 1814 and 1822.
Jon

vtMaps
Posts: 309
Joined: Tue Oct 14, 2008 12:05 pm
Location: central Vermont

Re: SS earnings limit with unpredictable earned income

Post by vtMaps » Tue Oct 31, 2017 8:24 am

Penguin wrote:
Tue Oct 31, 2017 5:29 am
Check here:
https://ssa.gov/OP_Home%2Fhandbook/ ... toc18.html
especially 1814 and 1822.
Thanks, Penguin.
From 1822 (emphasis mine):
When you file your expected earnings report, you are encouraged to make a high estimate of earnings for the year.
From When is an individual “at fault” in receiving an overpayment? (#1917 in the handbook):
You are “at fault” if the overpayment results from:
A. A willful misstatement;
B. Hiding of facts or fraud which directly or indirectly caused the overpayment;
C. Your failure to furnish information that you knew or should have known was important; or
D. Acceptance of a payment that you knew or should have known was incorrect.
I guess that I'm not quite sure what are the consequences of underestimating her expected earnings.

Given her expected earned income, I think she will get only half of her benefit (until FRA). I do believe (based on my research) that she will never get back (in increased benefits) the money that will be withheld from her benefits now. If I understand correctly, that is because her earned income will not be among her best 35 years.

Despite losing half of her benefit, I believe that she is still better off filing now, rather than waiting until FRA to file for restricted benefits. If she waits until FRA (almost 3 years) to file for survivor's benefits, she will receive a larger monthly benefit than if she files now, but I don't think that makes up for declining almost 3 years of reduced benefits.

--vtMaps
The optimist proclaims that we live in the best of all possible worlds; and the pessimist fears this is true. --James Branch Cabell

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