What To Do Ifyou Get An Overpayment Notice From The Social Security Administration
Ifyou are under full retirement age and receive income from a source that is notone of the common ones we discussed above, youll likely receive a letter fromthe SSA alleging an overpayment.
Ifyou do, DONT IMMEDIATELY ASSUME YOU HAVE TO PAY THE AMOUNT BACK.
Youdo need to communicate with theSocial Security Administration about this notice, or theyll turn you benefitoff but just because you receive a letter saying that the earnings testshouldve applied doesnt mean they are right.
Iveseen multiple cases in which all a client had to do was write a letter ofexplanation because the mistake was on the SSAs end.
Justbe aware that when it comes to the earnings test, the Social SecurityAdministration seems to use the same playbook as the IRS does when they have aquestion. Instead of sending you a letter to get clarification, they simplyassume they are right and tell send you a letter saying how much you owe inadditional taxes.
Forexample, if a client sells a stock and doesnt include the cost basis, the IRSjust assumes the entire amount of the proceeds should be a capital gain. Youhave to go back to them and tell them how much of the proceeds were the costbasis and how much represented an actual gain.
TheSocial Security Administration will often do something similar when it comes tothe earnings test and payments or income you received. Theyll send you anoverpayment letter that says something along the lines of,
Raising The Widow’s Limit
One way to think about how the widow’s limit works is to realize that it is the lesser of two amounts that is actually paid to a widow. The first amountthe initial benefit amountis what the widow would receive if the limit provision did not exist. Basically, the initial benefit amount is equal to the PIA if the widow is entitled after the normal retirement age otherwise, the initial benefit amount reflects actuarial reductions because the widow claimed a benefit early. The second amountthe RIB-LIMamountis the higher of either the amount the worker would be receiving if alive or 82.5 percent of PIA. Under current law, the widow is paid the lesser of the initial benefit amount and the RIB-LIM amount. One can express these relationships mathematically as follows.
One possible change to the widow’s limit would be to augment the current floor to the RIB-LIM amount. Specifically, consider a change that would set the floor at the maximum of either 82.5 percent of the worker’s PIA or the average PIA among all retired workers . 13 Under such an option, equation 1 would read as follows:
The option could, in a straightforward way, be implemented under the current general structure of benefits: if AVGPIA exceeds 82.5 percent of the deceased worker’s PIA, use AVGPIA instead of 82.5 percent of PIA when calculating widow benefits. 14
How Theearnings Or Income Limit Relates To Your Full Retirement Age
If you make more than $19,560, the Social Security Administration will withhold $1 in benefits for every $2 in income that exceeds that amount.
The one exception isduring the calendar year you attain full retirement age. During that period,the earnings limit nearly triples and the withholding amount is not as steep.
For every $3 you earnover the income limit, Social Security will withhold $1 in benefits. At yourfull retirement age, there is no income limit.
The $19,560 amount is the number for 2022, but the dollar amount of the income limit will increase on an annual basis going forward. You need to keep up with the year-to-year changes to stay informed.
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Rules For Retirement And Survivor Benefits
The family maximum formula for Old-Age and Survivors Insurance benefits is based on a beneficiary’s primary insurance amount . The PIA is a beneficiary’s basic Social Security benefit amount before adjustments for retirement age, earnings, and other factors.1 For a worker who reaches age 62 or dies in 2015 , SSA calculates the family maximum using the following formula:
150 percent of the first $1,056 of the worker’s PIAplus
272 percent of the worker’s PIA over $1,056 through $1,524 plus
134 percent of the worker’s PIA over $1,524 through $1,987 plus
175 percent of the worker’s PIA over $1,987.
Ultimately, this formula yields a maximum for each family that is between 150 percent and 188 percent of the worker’s basic Social Security benefit, or PIA.2 The final amount is rounded to the next lowest ten cents. The dollar amounts in the family maximum formula increase each year according to average wage growth.3
What Counts Asincome To The Social Security Administration
Now that you have abasic understanding of the income limit, we need to look at what actuallycounts as income toward that limit.
Thankfully, theSocial Security administration makes it easy to understand for most types of income that you mightnormally receive. First, lets look at the income that does not count.
Income that does not count toward the earnings limit includes:
- Pension payments
- Interest income
As the law iscurrently written, you can receive an unlimited amount of income from thesources above and receive your full Social Security benefit.
The income that does count in the earnings limit is employment income. That means gross employment wages if youre an employee and/or your net earnings from self-employment.
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Social Security Retirement Benefits
Eligibility
Workers who have worked in covered employment for a sufficient number of years are eligible for retirement benefits when they retire at age 62. This usually means you must have worked a total of at least ten years of work at a nongovernmental job.
The Social Security Administration keeps a database of your earnings record and work credits, tracking both through your Social Security number. You can see this information on your Social Security Statement, which is available to everyone age 25 and over. The Social Security Statement also gives you an estimate of the benefits youll receive at retirement age, which can play an important role in your financial planning.
Up until 2011, the SSA mailed annual Social Security Statements to everyone age 25 and over . Now you need to go online to get a copy of your statement or view it online, unless you are over age 60 and not yet collecting Social Security benefits. You can open an account with Social Security to view your statement.
When Can I Start Collecting?
The Social Security Administration used to consider 65 to be full retirement age for the retirement benefit. Benefits amounts were calculated on the assumption that most workers will stop working full time and will claim retirement benefits when they reach age 65.
Retirement Age for Those Born After 1937
| 1938 |
| 67 years |
Benefit Amount Calculation
Reporting Excess Wages To The Social Security Administration
So, how will the Social Security Administration know that you earned more than the annual limit? The answer is that you will need to tell them. If you are going to earn more than the earnings limit, you should notify the Social Security Administration right away. This notification will allow them to properly adjust your benefits so that you are getting the correct direct deposit amount each month. Failure to notify the SSA could have adverse consequences.
If you fail to notify the Social Security Administration that you will make more than the earnings limit, they will eventually find out. When you file your income taxes the following year, they will be aware that you made more than the limit in the previous year. If you were still receiving full benefits during the previous year, that could spell bad news for your wallet especially if you didnt pay the proper amount of Social Security taxes. You will likely be forced to repay the excess benefits that you received. In addition, you might even owe some penalties and fees on the excess benefits you received.
Therefore, it is extremely important to notify the Social Security Administration right away if you think you might make more than the earnings limit before you reach full retirement age. If you have any questions about how it might affect your payments, you should consult a licensed financial advisor in your area. They can give you advice on the best approach for your personal financial situation.
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How Much Can I Earn And Still Get Benefits
When you begin receiving Social Security retirement benefits, you are considered retired for our purposes. You can get Social Security retirement or survivors benefits and work at the same time. However, there is a limit to how much you can earn and still receive full benefits.
If you are younger than full retirement age and earn more than the yearly earnings limit, we may reduce your benefit amount.
If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2022, that limit is $19,560.
In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit. In 2022, this limit on your earnings is $51,960. We only count your earnings up to the month before you reach your full retirement age, not your earnings for the entire year.
If your earnings will be over the limit for the year and you will receive retirement benefits for part of the year, we have a special rule that applies to earnings for one year. The special rule lets us pay a full Social Security benefit for any whole month we consider you retired, regardless of your yearly earnings.
Read our publication, How Work Affects Your Benefits, for more information.
When you reach full retirement age:
For Your Surviving Divorced Spouse
If you have a surviving divorced spouse, they could get the same benefits as your widow or widower if that marriage lasted 10 years or more.
Benefits paid to a surviving divorced spouse won’t affect the benefit amounts your other survivors will receive based on your earnings record.
after they reach age 60
If your former spouse is caring for your child who is under age 16 who has a disability and gets benefits on your record, they will not have to meet the length-of-marriage rule. The child must be your natural or legally adopted child.
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How We Deduct Earnings From Benefits
In 2022, if youre under full retirement age, the annual earnings limit is $19,560. If you will reach full retirement age in 2022, the limit on your earnings for the months before full retirement age is $51,960.
Starting with the month you reach full retirement age, there is no limit on how much you can earn and still receive your benefits.
Let’s look at a few examples. You are receiving Social Security retirement benefits every month in 2022 and you:
-
Are under full retirement age all year. You are entitled to $800 a month in benefits.
You work and earn $29,560 during the year. Your Social Security benefits would be reduced by $5,000 . You would receive $4,600 of your $9,600 in benefits for the year.
-
Reach full retirement age in August 2022. You are entitled to $800 per month in benefits.
You work and earn $63,000 during the year, with $52,638 of it in the 7 months from January through July.
- Your Social Security benefits would be reduced through July by $226 . You would still receive $5,374 out of your $5,600 benefits for the first 7 months.
- Beginning in August 2022, when you reach full retirement age, you would receive your full benefit , no matter how much you earn.
If you are eligible for retirement benefits this year and are still working, you can use our earnings test calculator to see how your earnings could affect your benefit payments.
Dont Trust Social Security To Get Yourcalculations Correct
You can see that your family members do receive benefits if you retire,become disabled, or die but those benefits may be impacted if they hitcertain caps on how much the Social Security Administration will pay to yourfamily, or if you have a particularly tricky situation.
Thats good to know but you cant justtrust the Administration to get things right. That would be too easy! In fact, a 2014 audit by the Office of theInspector General found multiplecases where the SSA screwed up the family maximum.
In their random sample, they found $41million in improper payments to spouses and children with respect to the familymaximum benefit. Some of these improper payments were higher than they shouldhave been, while some were wrongfully lower.
The SSA claims incorrect paymentsgenerally occur because they are manually calculated bytheir employees. Making mattersworse, for more complex casessuch as spouses who receive part of their benefitfrom their work and part from a spouse, or a spouse who receives a child-in-carebenefit the Administration does not have the same automated review processas they do for almost every other kind of benefit payment.
The last thing you want to worry about iswhether or not you and your family are actually receiving all the benefitpayments you should or if youre receiving more than you should and constantly worrying about receiving anoverpayment notice and correction in the mail.
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How Do You Apply For Social Security Survivors Benefits
If you are unable to work due to a medical condition or disability, the Social Security Administration can provide disability benefits. These benefits can help you pay medical bills and every day living expenses without making a regular income. If you are financially dependent on a worker who has died, you may be able to receive survivors benefits from the SSA to help with the costs and expenses you are left to handle.
Social Security Income Limits For 2022
Heres how much Social Security will deduct from your earnings if you work while collecting Social Security before your FRA:
If you are under full retirement age for the entire year, Social Security will deduct $1 from your benefit payments for every $2 you earn above the annual limit.
For 2022, that limit is $19,560.
In the year you reach full retirement age, Social Security will deduct $1 in benefits for every $3 you earn above a different limit.
In 2022, this limit is $51,960.
The limit changes every year, similar to the changes in COLA.
The table below provides a summary of the earnings limit:
| Age |
| For every $3 over the limit, $1 is withheld from Social Security benefit |
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Social Security Disability Benefits Income Limits
You might be wondering, How much can I earn while on Social Security disability in 2022? The answer can get a little complicated, but here are the details. By receiving disability benefits, you have been found unable to perform substantial gainful activity. In essence, this means that you cannot work due to your disability. So, working while receiving a disability benefit is a bit contradictory. However, you can have some income without it affecting your disability insurance payments.
In 2022, you can earn up to $1,350 per month without any effect on your disability payments. In addition, the Social Security Administration encourages disability recipients to return to work when possible. To help with this, the SSA allows a trial work period during which benefit recipients may earn unlimited income without any effect on their benefits. The trial work period lasts for nine months, and the months do not have to be consecutive. Any month in which a person earns more than $970 is considered to be a trial work month. In effect, this allows a person to have nine months of unlimited income without any effect on their benefits so they can test their ability to return to work.
Social Security Income Limit Summary
Heres the bottom line:
If you collect Social Security early, say at 62, and earn income from work that exceeds the income limit, Social Security will deduct $1 from your benefit payments for every $2 you earn above the annual limit.
For 2022, that limit is $19,560.
In the year you reach full retirement age, Social Security will deduct $1 in benefits for every $3 you earn above a different limit.
In 2022, this limit on your earnings is $51,960.
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Social Security Income Limit 2022
Note: The Social Security earnings limit changes each year. The most current version of this article uses numbers for 2022.
At one of my first speaking engagements, I heard a great story from one of the attendees. Her experience provides us with one of the best examples Ive ever heard of how much the Social Security income limit can catch you by surprise.
A few years earlier, shed been at her bridge club when the topic turned to Social Security. As she and the other card players chatted about the best way to leverage Social Security Benefits, the consensus around the table seemed to be that filing at 62 was the smartest thing to do.
This lady, trusting the advice of some of her closest friends, did just that: She filed for benefits as soon as she turned 62.
She then told me shed always wanted to buy a brand-new Toyota Camry. She figured that, once she started receiving Social Security income, it would be the perfect time to buy the car. She was still working, which meant her Social Security check would be extra income.
As she told the story to me, she bought the car and took out a car loan to do it. She planned to repay the loan using some of the income she expected to receive from her Social Security benefits since she filed for them.
Imagine her surprise, then, when a nasty letter from Social Security Administration showed up in her mailbox. The letter claimed she had been paid benefits that she was not eligible for!