When Are Children Eligible For Social Security Benefits
The Social Security Administration is probably best known for overseeing the federal governments retirement benefits program, but the agency also pays billions of dollars a year in benefits to children. According to the SSA website, in 2021 it paid an average of $2.8 billion a month in benefits to children whose parents were retired, deceased or disabled.
Childrens benefits are designed to provide necessities for eligible family members and help young people finish school. When a parent develops a disability or dies, Social Security benefits help stabilize the familys financial future.
To get benefits, a child must meet one of the following criteria:
A parent who is retired or has a disability and is entitled to Social Security benefits A parent who died after having worked long enough in a job where they paid Social Security taxes
Beyond that, an unmarried child can get benefits if they are either younger than age 18 between ages 18 and 19 and a full-time student at an elementary or secondary school or age 18 or older with a disability that began before age 22.
There is no minimum age for a child to get Social Security benefits. They become eligible as soon as they meet the above criteria. Under certain circumstances, Social Security can also pay benefits to a stepchild, grandchild, step-grandchild or adopted child.
State Taxes On Social Security Benefits
Everything weve discussed above is about your federal income taxes. Depending on where you live, you may also have to pay state income taxes.
There are 12 states that collect taxes on at least some Social Security income. Two of those states follow the same taxation rules as the federal government. So if you live in one of those two states then you will pay the states regular income tax rates on all of your taxable benefits .
The other states also follow the federal rules but offer deductions or exemptions based on your age or income. So in those nine states, you likely wont pay tax on the full taxable amount.
The other 38 states do not tax Social Security income.
|State Taxes on Social Security Benefits|
|Taxed According to Federal Rules||Minnesota, Utah|
Are Social Security Benefits Taxable
Up to 50% or even 85% of your Social security benefits are taxable if your provisional or total income, as defined by tax law, is above a certain base amount. Your Social Security income may not be taxable at all if your total income is below the base amount.
If youre married and filing jointly with your spouse, your combined incomes and social security benefits are used to figure your total income.
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How To Reduce Taxes On Social Security Benefits
Despite the increase in taxes, there are steps you can take to reduce the taxes on your Social Security benefits.
First of all, you may want to consider which state you live in.
This is because only 13 states tax Social Security benefits – in the others, you’re “only” hit with federal income tax.
Keep in mind, some states may not tax Social Security but they could have a higher cost of living, higher property taxes or other expenses that might end up costing you more.
Another way to reduce or eliminate federal tax on Social Security benefits is to keep most of your savings in a Roth IRA.
With a Roth IRA, contributions are not tax-deductible, but earnings can grow tax-free.
Qualified withdrawals are tax and penalty-free, but there are some exceptions:
- Withdrawals must be taken after age 59 1/2
- Withdrawals must be taken after a five-year holding period
Finally, if you have not retired yet, you should consider taking IRA withdrawals before signing up for Social Security benefits.
You can claim as early as 62 but this will result in a 30% reduction of your monthly benefits.
If your full retirement age is 66, youll get 100% of your monthly benefit if you start claiming then.
If you delay benefits for an additional 12 months, youll receive 108%, and if you wait until 70, you’ll get 132% of the monthly benefit.
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Social Security Tax Limits
The government bases the annual Social Security tax limits on changes in the National Wage Index , which tends to increase every year. The changes are intended to keep Social Security benefits on track with current inflation.
Any income you earn beyond the wage cap amount is not subject to a 6.2% Social Security payroll tax. For example, an employee who earns $165,000 in 2022 will pay $9,114 in Social Security taxes .
Keep in mind, however, that there is no wage base limit for Medicare tax. While the employee is only subject to Social Security tax on the first $147,00, they will have to pay 1.45% Medicare tax on the entire $165,000. Workers who earn more than $200,000 in 2022 are also subject to an 0.9% additional Medicare tax.
The combination of the increase in the Social Security tax limit and the additional Medicare tax for high-earners could result in lower take-home pay. Unfortunately, that means workers who earned over $200,000 in 2021 are at risk of owing more taxes in 2022.
Here is an example of how the Social Security limit works in 2021 and 2022:
|Social Security Tax Limit Example|
State Taxation Of Social Security Benefits
In addition to federal taxes, some states tax Social Security benefits, too. The methods and extent to which states tax benefits vary. For example, New Mexico treats Social Security benefits the same way as the federal government. On the other hand, some states tax Social Security benefits only if income exceeds a specified threshold amount. Missouri, for instance, taxes Social Security benefits only if your income is at least $85,000, or $100,000 if you’re married filing a joint return. Utah includes Social Security benefits in taxable income but allows a tax credit for a portion of the benefits subject to tax.
Although you can’t have state taxes withheld from your Social Security benefits, you generally can make estimated state tax payments. Check with the state tax agency where you live for information about the your state’s estimated tax payment rules.
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There Are Some Very Good Reasons To Delay Collecting Your Benefits
One day, you’ll probably be among the tens of millions of Americans who collect Social Security . How much will you collect? Well, the answer to that is different for each of us, depending mostly on how much we earned in our working lives — and also to a great degree on when we start collecting our benefits.
We can start collecting as early as age 62, and most people start collecting around age 62 or 63. There are good reasons to not do so, though — as well as some arguments in favor of it. Here’s a closer look at why you might regret claiming at 62 — followed by a few reasons it might make sense for you.
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For Years New Mexico Was One Of Just A Few States That Still Taxed Social Security Benefits New Mexico Seniors Deserve To Hold Onto Their Hard
Beginning with tax year 2022, most seniors will be exempt from paying taxes on their Social Security benefits when they file their New Mexico Personal Income Tax returns. Tax relief from the new Social Security exemption is expected to total $84.1 million in the first year. The exemption is available to single taxpayers with less than $100,000 in income, to married couples filing jointly, surviving spouses and heads of household with under $150,000 in income, and to married couples filing separately with under $75,000 in income.
Instructions on how to claim the exemption will be available beginning with the 2022 Tax Year Personal Income Tax instructions.
Do you know someone who could benefit? Please share this page. Are you considering retiring in New Mexico? Retire New Mexico can help. Learn more here:
Fact #: Social Security Lifts Millions Of Older Adults Above The Poverty Line
Without Social Security benefits, about 4 in 10 adults aged 65 and older would have incomes below the poverty line, all else being equal, according to official estimates based on the 2021 Current Population Survey. Social Security benefits lift more than 16 million older adults above the poverty line, these estimates show.
An important study on retirement income from the U.S. Census Bureau that matches Census estimates to administrative data suggests that the official estimates overstate older people’s reliance on Social Security. The study finds that in 2012, 3 in 10 older adults would have been poor without Social Security, and that the program lifted more than 10 million older adults above the poverty line.
No matter how it is measured, its clear that Social Security lifts millions of older adults above the poverty line and dramatically reduces their poverty rate.
You Have To Earn 40 Quarters Of Coverage To Be Eligible For Benefits
Social Security is not a birthright. To earn benefits, youll have to qualify based on your work record. The Social Security Administration requires 40 quarters of coverage in order to qualify for benefits. Each year, you can earn up to four quarters of coverage, so for most workers, 10 years of employment are required to qualify for Social Security. For 2022, $1,510 in earnings qualifies for one quarter of coverage. This amount is adjusted annually for inflation.
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More Of Your Social Security Will Be Taxed
Yes, your Social Security benefits are taxable. The amount that is hit with taxes will depend on household income levels. Just 50% of your benefits will be taxed if your income is between $25,000 and $34,000 as an individual. That goes up to $32,000 to $44,000 for a married couple, which is another example of the marriage penalty. As you get more Social Security income, more of your benefits will be taxed.
Hopefully, everyone reading this will have more income than that to live off in retirement. If so, 85% of your Social Security benefits will be taxable. That is assuming you have an income, in retirement, of $34,000 or $44,000 as a married couple.
Whatever your current age, take a moment and register for access to your Social Security benefit estimates. Visit ssa.gov, take a few minutes, and you will be able to find more information about Social Security, and more importantly, get an estimate of what your Social Security benefits will look like in retirement.
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Earnings Limits For Recipients Were Increased
If you work while collecting Social Security benefits, then all or part of your benefits may be temporarily withheld, depending on how much you earn. However, those income limits have increased slightly for 2022.
Prior to reaching full retirement age, you will be able to earn up to $19,560 in 2022. After that, $1 will be deducted from your payment for every $2 that exceeds the limit. The 2022 annual limit represents a $600 increase over the 2021 limit of $18,960.
If you reach full retirement age in 2022, then you will be able to earn $51,960, up $1,440 from the 2021 annual limit of $50,520. For every $3 you earn over the limit, your Social Security benefits will be reduced by $1, but that will only apply to money earned in the months prior to hitting full retirement age. Once you reach full retirement age, no benefits will be withheld if you continue working.
Social Security: 7 Must
Know the basics if you’re at or nearing retirement age. Social Security 101
Social Security is an ever-evolving program. While the broad strokes of Social Security remain the same you pay taxes while you are working and then receive benefits after you retire the details can change frequently, often from year to year. This is certainly true for 2022, where a number of important Social Security metrics changed in line with a rising inflation rate.
But how do these changes affect you if you are nearing retirement or have already started receiving benefits? Heres a look at some of the most important facts about Social Security for 2022.
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Survivors Children And Spouses Even Ex
Social Security pays a wide range of benefits, not just to retirees. Children of disabled, retired or deceased workers, for example, may be eligible for benefits, as are widows or widowers of beneficiaries. Spouses can claim benefits worth up to 50% of the primary beneficiarys payout, even if they never worked a day in their lives. Even ex-spouses may be entitled to this benefit, as long as they were originally married for at least 10 years and the person claiming spousal benefits isnt remarried.
Who Could Be Affected
People in the 10%, 12%, and 22% federal tax brackets could be affected by the high marginal rate, especially those with above-average Social Security benefits. If youre part of this group, consider working with a tax professional to fine-tune your retirement expenses, income, and tax projections. Doing so could help you determine whether additional planning or adjustments may be necessary.
Suppose you and your spouse collect $70,000 a year in combined annual Social Security benefits and your only other income is $65,000 of distributions from individual retirement accounts . This makes your provisional income $100,000. At that level, you havent quite reached the 85% cap on taxability of Social Security.* Now suppose you take an additional $1,000 from your IRA. You might expect to pay $220 more in taxes since youll be in the 22% bracket. However, since that $1,000 results in $850 more of your Social Security benefits being subject to tax, your tax bill increases by $407 . Your marginal tax rate is really 40.7% at this point, but at higher income levels, it eventually goes back down to 22%. If there are steps you can take to minimize the income taxed at this level, they are worth considering.
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Tax Withholding And Estimated Tax Payments For Social Security Benefits
If you know in advance that a portion of your Social Security benefits will be taxed, it’s a good idea to have federal income taxes withheld from your payment each month. Simply fill out Form W-4V to request withholding at a rate of 7%, 10%, 12% or 22%, and then send the form to your local Social Security office.
If you don’t want to have taxes withheld from your monthly payments, you can make quarterly estimated tax payments instead. Either way, you just want to make sure you have enough withheld or paid quarterly to avoid an IRS underpayment penalty when you file your income tax return for the year.
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If you wait until January 2023 to start drawing your benefits, then a smaller reduction percentage will be applied to your benefit rate, but that wouldn’t amount to as much as an 8% increase. 8% is the annual increase caused by delayed retirement credits , which can only be earned between a person’s full retirement age and 70. The actual difference between your age 62 and age 63 amounts would be less than 8%.
You may want to consider using my company’s software Maximize My Social Security or MaxiFi Planner to ensure your household receives the highest lifetime benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry
Is My Mom Eligible To A Widow’s Benefit?
Hi Larry, My dad died in 2015 and he was not on Social Security. He would be 60 this September. Would my mom be eligible to receive a widow’s benefit based on my deceased fathers Social Security record? Thanks, Henry
If she meets these requirements, she can be eligible for widow’s benefits. If she applies and SSA finds that she’s not eligible for some reason, there’s no penalty for applying. Best, Larry
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Why You Need To Supplement Your Social Security Benefits
First off, Social Security was intended to be a supplement to people’s retirement savings. The National Institute on Retirement Security describes retirement income as a ‘three-legged stool’, consisting of Social Security, a pension plan, and individual retirement savings through accounts like a 401 or an individual retirement account.
However, since the 1980s, fewer and fewer companies have been offering pension plans to their employees. The onus for saving for retirement has fallen on the employee.
And most people aren’t doing great when it comes to saving for the future: A 2020 NIRS study found that 40% of Americans rely on Social Security as their sole source of retirement income. The average annual Social Security benefit for a worker is nearly $20,000, hardly enough money for most retirees to subsist on.
When it comes to saving for retirement, it’s important to start as early as you can, whether that’s through an employer-sponsored 401 or a traditional or Roth IRA. By saving for retirement early in life, you’ll reap the benefits of compound interest, which is interest earned on interest.
For example, if you started saving for retirement when you’re 25 and had investments yielding a more conservative 6% return, you would need to invest $530 per month for 40 years to reach $1 million. If you waited until you were 40 and had investments yielding a 6% return, you would need to invest $1,500 per month for 25 years to end up with $1 million.