Fiscal Cliff Deal. Health Care Reform Bill. Payroll Tax Cut. Is your vision starting to blur? There are so many financial issues out there, it can seem like everything is beyond your control. But there are some pieces of your personal financial information that you can and should know about directly. One of those is Social Security. Know how much you’ve put in, how and when you should take it out, and how much tax you may have to pay on those benefits. But…
WARNING: We have had experience with women who married and never changed their name with Social Security. And they did not receive credit for their earnings under their married/divorced names until Social Security had the marriage licenses or the divorce decrees. One woman was married and divorced five times without once changing her name with Social Security. She was missing nearly forty years of earnings. She also didn’t have her marriage licenses or divorce decrees. Now that was a project. In the end she got her all of her social security credits, but it took nearly a year to get all the pieces together.
- Review your social security statement every year and make sure the earnings amounts are correct. Don’t assume! Otherwise, an administrative error could cost your retirement.
- If you are drawing on Social Security already, work with your tax professional to be sure that you understand how much tax you may have to pay on those benefits. If one half of your Social Security benefits plus your gross income is more than $25,000, be prepared to pay income taxes on the exceeding amount.
- Trying to figure out what amount you’ll receive in benefits in 2014? There will be a Cost of Living Adjustment in 2014 of 1.5%, so put that into your tax calculations.
- There is a tax calculation called the ‘Social Security Wage Base.’ You know already that you pay taxes which contribute to the Social Security program. However, there is a limit on the wages that are taxed for that contribution; if you earn more than the wage base income figure, you don’t pay Social Security taxes on those ‘above and beyond’ earnings. (Note that we said Social Security taxes, not Income Taxes!) For 2014, that Wage Base has increased to$117,000 – up from $113,700 in 2013.
It’s always worth discussing all sources of your income with your tax professional BEFORE the tax year ends. A professional may help you find ways to avoid an unexpected tax bill next April!
For help with these and other tax issues, contact Martha Miller, a Litchfield County, Connecticut tax attorney, admitted to practice in CT, NY, and before the US Tax Court. We accept state tax problems for CT, MA and NY, and we accept U.S. federal tax problems from any location in the world.