If you've started collecting Social
Security benefits and are still working, there are two factors
that may be working against you. The first is the "giveback." For
2004, if you are under full retirement age (65 to 67, depending
on your year of birth), you will have to return $1 of benefits
for every $2 earned in excess of $11,640. For the year full retirement
age is attained, and until the actual month in which it is reached,
you will have to return $1 for every $3 earned in excess of $31,080
in 2004. There is no earnings limit requiring a giveback after
reaching full retirement age.
The second factor is the potential taxability of Social Security
benefits. Under current law, individuals with higher levels
of earned income may be taxed on 85% of their benefits. For
example, if modified adjusted gross income (MAGI) for Social
Security purposes (generally all income including tax-exempt
interest plus one-half of Social Security benefits received)
exceeds $44,000 for those who are married and filing jointly,
then up to 85 percent of benefits are included in regular taxable
income. Relaxing the taxation of Social Security benefits has been discussed
in Washington, but that issue has cooled somewhat in recent
years, particularly as marginal rates initially dropped as
a result of the Economic Growth and Tax Relief Reconciliation
Act of 2001 (EGTRRA), and then again with the Jobs and Growth
Tax Relief Reconciliation Act of 2003 (JGTRRA). Nevertheless,
the issue of taxation on Social Security benefits bears careful
watching by those who may be impacted by further changes.
At least for the immediate future, when you add up the regular
tax on earned income, the FICA tax on wages (or self-employment
income), the potential "giveback" of benefits if you
are under age 70 and still working, and exposing up to 85% of
benefits to taxation, you may find that "paying for the
privilege" of working may be a bit steep.
If you really need the extra income, you may have little choice.
On the other hand, if you`re doing something you really enjoy,
the tax costs may be a small price to pay for staying busy, being
challenged, and feeling productive. |
