Social Security disability work incentives

Q: I receive Social Security disability and want to return to work. What will this do to my benefits?

A: For specific information about your own benefits, contact Social Security and speak with a representative.

In general, special rules called work incentives make it possible for people with disabilities receiving Social Security or Supplemental Security Income (SSI) to work and still receive monthly payments and Medicare or Medicaid.

Remember that Social Security, including disability (SSDI), and SSI are different programs, with different work incentives for returning to work.

Always report a return to work. This is very important. Also report related changes including stopping the work.

For Social Security disability, a main work incentive is the trial work period (TWP).

The trial work period allows you to test your ability to work for at least 9 months. During a trial work period, you receive full disability benefit regardless of how much you earn as long as your work activity has been reported and you continue to have a disabling impairment. The 9 months does not need to be consecutive and your trial work period will last until you accumulate 9 months within a rolling 60-month period. Certain other rules apply. In 2015, gross monthly earnings of $780 or more will usually count as a month toward the TWP.

After a trail work period is completed, your work activity will be reviewed to see if you earnings are considered substantial gainful activity (SGA) . Exceptions apply but, in general, in 2015 monthly gross earnings of at least $1,090 are considered SGA for a person who is not blind and $1,820 for a person who is blind. Ongoing ability to work at a substantial gainful activity level can result in benefits being stopped.

If this occurs, you have an extended period of disability (EPE).

This means that if your disability benefits stop after successfully completing the trial work period and ongoing work at the substantial gainful activity (SGA) level, your Social Security disability benefits can be automatically reinstated without a new application for any months in which your earnings drop below the SGA level.

This reinstatement period lasts for 36 consecutive months following the end of the trial work period. You must continue to have a disabling medical impairment in addition to having earnings below the SGA level for that month.

Continuation of Medicare.

Of major importance, even if cash benefits end, for most beneficiaries existing Medicare coverage continues through the EPE and beyond.

Most persons with disabilities who work will continue to receive at least 93 consecutive months of Hospital Insurance (Part A); Supplemental Medical Insurance (Part B), if enrolled; and Prescription Drug coverage (Part D), if enrolled, after the 9-month Trial Work Period (TWP).

You do not pay a premium for Part A. Although cash benefits may cease due to work, you have the assurance of continued health insurance. (93 months is 7 years and 9 months.)

This is not a complete list of work incentives for Social Security disability insurance (SSDI). There are different work incentives for Supplemental Security Income (SSI). More general information is here.

Again, for details about your own benefits, speak to a Social Security representative.

Work_Incentive

FRA and the SSA Amendments of 1983

Regular readers know that your full retirement age (FRA) is based on year of birth and ranges from age 65 for people born in 1937 or earlier, to age 67 for people born in 1960 and later. FRA is age 66 for people born in 1943 – 1954.

Full retirement age is the age at you can first become entitled to full or unreduced retirement benefits. Starting Social Security retirement when younger than FRA results in a reduced benefit amount. Starting retirement when older than FRA results in an increased amount.

While not that often anymore, I continue to meet people who are not aware that FRA varies and they usually ask when this came about. Learning that this change was part of the 1983 Social Security Amendments is a second surprise to them, especially when they realize that these FRA changes are still being phased in.

Why was full retirement age changed in 1983?

In the early 1980’s the Social Security program faced a serious short-term financing crisis. President Reagan appointed a blue-ribbon panel, the National Commission on Social Security Reform, known as the Greenspan Commission, to study the financing issues and make recommendations for legislative changes.

Resulting legislation, Public Law 98-21, the Social Security Amendments of 1983, was signed into law on April 20, 1983, by President Ronald Reagan (signing ceremony photo). It included the changes to full retirement age.

In addition to increasing full retirement age over many years, the 1983 Amendments made numerous other changes in the Social Security and Medicare programs including the taxation of Social Security benefits and the first coverage of Federal employees.

The 1983 Amendments also provided Social Security coverage for all Members of Congress, the President and Vice-President, Federal Judges and other executive-level political appointees of the Federal Government.

There were many other provisions to the legislation. You can read a summary of the 1983 Amendments here.

Today is the 32nd anniversary of the signing of the 1983 Amendments by President Reagan.

 

April is Financial Literacy Month

April is Financial Literacy Month, a time to evaluate efforts to save, invest, and plan for your future. Planning for retirement is an essential long-term goal and a critical step on the road toward financial health. Now is a good time to start planning, no matter what your age so that time and compound interest works to your advantage.

Get a good estimate of your future SSA retirement amount with the Social Security online Retirement Estimator, one part of the SSA retirement planner. The estimator connects to your actual work record to provide a personal estimate. You can change the default estimates for those more in tune with your actual plans.

For those years from retirement, create a my Social Security account and use it to view your Social Security Statement. The Statement shows the earnings on your Social Security record but, more to the point of financial planning, has estimated personal and family benefits should you become disabled or die as well as for retirement. This information helps you arrange other parts of your financial planning.

Social Security personnel cannot assist with financial planning. Select your own helpers for this. Two websites to help you get started are www.mymoney.gov, the official U.S. government website dedicated to teaching Americans the basics of finances, and the Ballpark Estimator at www.choosetosave.org/ballpark, part of the American Savings Education Council program, which includes the Social Security Administration.

These sites, and others like them, are not just about savings for retirement. There are reasons to save for every stage of life.

April is Financial Literacy Month. Now is a good time to review your existing plan, or start one.

Disability is Social Security

I participate in a listener call-in radio show and a recent caller asked about Social Security disability. At age 53, he was found eligible for Social Security disability benefits and wanted to know what effect this would have on his future “real” Social Security, meaning retirement. His question provides today’s topic.

First, Social Security disability benefits are real Social Security, just another part of the program. The three parts of Social Security are retirement, survivors and disability.

Full retirement age (FRA) is a frequent topic when discussing Social Security retirement. Based on year of birth, it is the specific age that a person becomes eligible for a retirement amount that is neither reduced nor increased from the full retirement age amount. Benefits started prior to FRA are reduced by the number of months involved while benefits started afterward are increased in a similar way.

When determined eligible for Social Security disability, a person is essentially said to have reached full retirement age and their benefit amount is not reduced for age, even if they are actually much younger than their retirement FRA. Benefit amounts for disability are based on your career earnings, much as they are for retirement or survivors benefits.

Assuming a person remains eligible for Social Security disability, there is no change in benefits received once they actually reach their retirement FRA. All that would take place is an internal SSA change moving them from disability to retirement, without any visible change to the person’s benefits.

If a person went off disability and later became eligible for retirement, the years of none or low earnings while on disability would not be used to compute the retirement amount.

Medicare coverage begins after a person receives disability benefits for two years. Whether based on disability or retirement, the Medicare coverage is the same.

To estimate your own Social Security disability amount, create a my Social Security account and view your personal Statement. It contains an estimated amount that assumes you become disabled this year.

Learn more about Social Security disability here.

Reduction percentages for early retirement

If you start Social Security retirement before your full retirement age (FRA), how much of a monthly reduction will you take?

It depends on far away you are from FRA, at times called normal retirement age on the Social Security website, www.socialsecurity.gov. Starting your retirement when younger than FRA is called early retirement.

Regular readers know that Social Security retirement amounts are partly based on the number of months that you are younger than full retirement age. For example, if starting benefits 19 months before FRA, they are reduced by 19 months.

Based on year of birth, full retirement age ranges from age 65 to 67. It is age 66 for birth years 1943 – 1954. From the FRA chart you can see the amount of monthly retirement payable after reduction for age from age 62 to FRA for any given year of birth.

A recent question made me realize that I have not recently discussed the actual percentage amount of a monthly reduction. For retirement, two different monthly percentages could apply, depending again on the number of months that you are younger than full retirement age.

For early retirement, a benefit is reduced 5/9 of one percent for each month before full retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.

For example, if the number of reduction months is 60 (the maximum number for retirement at 62 when full (normal) retirement age is 67), then the benefit is reduced by 30 percent. This maximum reduction is calculated as 36 months times 5/9 of 1 percent plus 24 months times 5/12 of 1 percent.

Today’s topic was just about early retirement, when starting benefits before reaching full retirement age. Up to age 70, retirement benefits increase at a monthly rate of 2/3 of 1 percent for delayed retirement, when started after FRA. Called delayed retirement credits, this works out to an eight percent annual increase.

Looking for Social Security retirement information? Go to the SSA Retirement Planner at http://www.socialsecurity.gov/planners/retire/ for information, calculators, and ideas to consider. All of today’s information is there, and much more.

Retirement_Planner

Voluntary tax withholding from Social Security benefits

People filing application to start Social Security benefits often ask if taxes are withheld from their monthly payments. They are not. Taxes are not routinely withheld from Social Security benefits.

Especially during this time of year as people pay their Federal income tax, another popular question is whether taxes can voluntarily be withheld from Social Security payments. Yes, you can arrange this.

If desired, you can request voluntary Federal tax withholding from your monthly Social Security benefits. You may find doing this easier than paying quarterly estimated tax payments. See http://www.socialsecurity.gov/planners/taxwithold.htm.

To start voluntary Federal tax withholding you need to complete Internal Revenue Service (IRS) Form W-4V, Voluntary Withholding Request, and return it to your local Social Security office. To change or end an ongoing voluntary withholding, complete another form W-4V.

Withholding is by your selected percentage of monthly benefits, not a flat dollar amount. When completing the W-4V you select the percentage of benefits for tax withholding. Available options are to have 7 percent, 10 percent, 15 percent or 25 percent of your monthly benefit withheld.

The Social Security Administration has no authority to withhold state or local taxes from your benefit. Voluntary withholding is only for Federal taxes.

Social Security employees cannot provide tax advice. If voluntary withholding interests you, discuss it with your tax preparer or call IRS at 1-800-829-3676 (TTY 1-800-829-4059). To start voluntary tax withholding, complete and provide IRS Form W-4V to your local Social Security office.

Funding Social Security – payroll tax, income tax & more

Social Security funding information is on the website in the solvency section and in the annual Trustees Report section. Much of the today’s information is from the 2014 Trustees Report. OASDI means Old Age, Survivors and Disability Insurance (Social Security).

The primary portion of Social Security funding is from payroll tax. According to the 2014 Trustees Report (section B – Trust Fund Financial Operations in 2013), “In 2013, net payroll tax contributions accounted for 85 percent of total trust fund income. Net payroll tax contributions consist of taxes paid by employees, employers, and the self-employed on earnings covered by Social Security. These taxes are paid on covered earnings up to a specified maximum annual amount, which was $113,700 in 2013.”

What many people do not realize is that a portion of income tax helps fund Social Security, and Medicare too. No one pays income tax on all of their SSA benefit. Some people pay no tax on their benefits, some on up to 50 percent of benefits and some on up to 85 percent of benefits. Information about income tax and Social Security benefits are here.

Beginning in 1984, Federal law subjected up to 50 percent of an individual’s or a couple’s OASDI (Social Security) benefits to Federal income taxation under certain circumstances. Treasury allocates the revenue derived from this provision to the OASI (Old Age & Survivors Insurance) and DI (Disability Insurance) Trust Funds on the basis of the income taxes paid on the benefits from each fund.

Beginning in 1994, the law increased the maximum percentage from 50 percent to 85 percent. The HI Trust Fund (Health Insurance = Medicare) receives the additional tax revenue resulting from the increase to 85 percent.

This portion of income taxes returns to help fund Social Security retirement, survivors and disability. Again referring to the 2014 Trustees Report, in 2013 about two percent of combined Trust Fund income was from income tax paid on portions of Social Security benefits.

The third major funding source for Social Security is interest on the Trust Funds. There are two separate Social Security funds, the OASI Trust Fund and the DI Trust Fund.

Per the 2014 Trustees Report, “Interest earned on investment of trust fund asset reserves accounted for 12 percent of OASDI income. The Department of the Treasury invests trust fund reserves in interest-bearing securities issued by the U.S. Government. In 2013, the combined trust fund reserves earned interest at an effective annual rate of 3.8 percent.

Less than one percent of combined Trust Fund income was from the General Fund of the Treasury in 2013. Most of this was to reimburse funds for the loss of revenue due to temporary economic stimulus reductions in Social Security payroll taxes.

See the 2014 Trustees Report (section B – Trust Fund Financial Operations in 2013) for more details.

Average Social Security and SSI amounts in February 2015

For February 2015, following are three easily understood tables providing Social Security and Supplemental Security Income (SSI) information. These tables are online here.

Supplemental Security Income (SSI) is a separate, low-income program for the aged over 65, disabled or blind children, and disabled or blind adults that is administered by the Social Security Administration. Since SSI is completely different from Social Security, a person meeting the individual rules for each could become eligible for both programs. Income from Social Security reduces SSI amounts.

Learn more about Social Security and SSI at www.socialsecurity.gov.

Table 1 shows the number of people, in thousands, receiving Social Security and Supplemental Security Income (SSI) divided by Social Security only, SSI only, and people receiving both.

The “notes” in table 1 explain the difference in total Social Security beneficiaries shown between table 1 and table 2.

2015-02 table 1

Table 2 shows Social Security benefit information for February 2015, separated by number of beneficiaries receiving specific types of benefits and the average dollar amount of those benefits. The number of beneficiaries is again shown in the thousands, with total benefits shown in the millions and average amounts in dollars.

Social Security was never intended to provide full retirement income and this table emphasizes that fact. In February 2015, the average SSA retirement benefit, for the retiree only and excluding any family benefits, was $1,331.44.

2015-02 table 2

Table 3 shows Supplemental Security Income (SSI) benefit information for February 2015, separated by number of recipients receiving specific types of benefits and the average dollar amount of those benefits.  As above, the number of recipients are shown in the thousands, total benefits shown in the millions and average amounts in dollars.

In February 2015, the average SSI amount was $539.61. The 2015 maximum payable to an eligible individual is $733 per month. This maximum is reduced by other income, including Social Security benefits.

2015-02 table 3

These tables are online here.

Changing a child’s representative payee

Q: My ex-wife receives Social Security disability benefits for herself plus benefits for our daughter, for whom she has custody. Within the next few months, I will have custody and our daughter will live with me full-time.

Will Social Security start sending benefits for her to me or will they continue going to my ex-wife? Will the amount change when she is living with me?

A: A person receiving benefits on behalf of someone else is their representative payee. As a general guideline, the parent with legal custody is the preferred payee compared to a parent without custody but exceptions exist based on individual situations.

Changing the representative payee for your daughter, or anyone, is not automatic. You will need to request a change by completing an application to be the new payee for your daughter. This is not an online application so contact your Social Security office to do this. Expect to prove that you have custody and that your daughter is living with you.

A worker’s, in this case your ex-wife, own Social Security amount is based on his or her earnings history over many years. Benefits to a child or other family member do not change how much the worker receives for himself or herself.

Assuming you become your daughter’s representative payee, with her benefits sent in your care, the individual Social Security benefit of your ex-wife will not change although she would no longer receive the amount for your daughter.

The Social Security benefit amount for a child is based on the earnings record of the worker and will be the same wherever the child is living.

Representative payees are responsible for using Social Security benefits on behalf of the eligible person. As representative payee, you will have to report how funds for your daughter are used. Other responsibilities include reporting if your daughter is no longer living with you. Details are in the Guide for Representative Payees.

Retirement amount not limited by marriage

Q: Is there a total amount of Social Security benefits payable to a couple?

A: No, although this is a popular myth.

There is no marriage penalty, limit or other reduction when each member of a couple is eligible for their own Social Security retirement. Amounts to each member of the couple are based on their personal work records and ages when starting retirement. Amounts received by husband or wife do not affect what the other receives. Each independently starts Social Security when best for them.

Go to the SSA Retirement Planner at www.socialsecurity.gov/planners/retire/ to estimate your personal benefit amount at different retirement ages.

Note that the above refers to when each member of the couple receives their own, individual, retirement. There can be a financial benefit to a married couple if both receive Social Security through one person’s work record instead of separately.

For example, this could be if one member of a couple had low career earnings and was eligible for spousal benefits as husband or wife instead of their own personal retirement. In this case, the amount of spousal benefits is limited because they are based on the earnings of the person with the higher career earnings and not their own work record.

More about spousal and other family benefits is at the SSA Retirement Planner in the “Already near retirement age” section or go directly here.