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3 Social Security Rules That Could Catch You Off Guard

By Christy Bieber – Oct 8, 2021 at 8:17AM

Key Points

  • Many Americans don't know the truth about Social Security taxes.
  • Working while receiving Social Security could have a surprising effect.
  • Delaying a benefits claim doesn't always raise your benefits.

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Your finances could be affected if you aren't prepared for them.

Social Security is one of the most important entitlement programs in the United States since it provides a crucial source of retirement income for seniors. Unfortunately, there are many confusing rules that affect the amount of benefits older Americans actually end up with.

If you don't know these rules, you could face an unpleasant surprise when it comes to your retirement checks. To make sure you aren't caught off guard, here are three Social Security quirks you should learn about. 

Two older adults on a boat by the water.

Image source: Getty Images.

1. Spousal benefits don't grow by delaying beyond FRA

You've probably heard experts advise you to wait to claim Social Security in order to increase the size of your monthly checks. And in most cases, that's good advice.

Delaying a claim for benefits can provide a substantial increase in the amount of monthly income Social Security provides. You can avoid early filing penalties by not claiming until full retirement age and can earn delayed retirement credits by waiting even longer until age 70. 

But there's a caveat if you're claiming spousal benefits: You will not see an increase in your monthly checks if you claim past your FRA (which, depending on birth year, is between 66 and 2 months and 67). 

If you'll be getting benefits on your spouse's work record, there's no advantage to waiting to file after FRA. Unfortunately, if you don't know this weird quirk of the program, you could needlessly miss out on income you're entitled to. 

2. Working could mean forfeiting some of your benefits

If you haven't yet reached your full retirement age and you decide to work and earn some extra income after claiming Social Security benefits, this decision could cost you.

Earning too much money while getting retirement benefits can result in some of your checks being forfeited. You'll lose $1 for every $2 in income earned above $18,960 if you won't reach FRA during the year you work, and will lose $1 for every $3 in income earned above $50,520 in the year you'll reach FRA. 

This weird rule could leave you with a lot less money than you expect if you're counting on getting a paycheck and Social Security. Once you hit your FRA, you're eventually credited for months of benefits you didn't get, and your future checks will be higher because of it. But it can take a long time for the slightly higher monthly benefit that results to make up for the missed income. 

3. Your benefits could be taxed

Surprisingly, the IRS starts taxing part of your Social Security benefits once your provisional income hits $25,000 as a single tax filer or $32,000 as a married joint filer. Provisional income includes all taxable income, some nontaxable income, and half your Social Security benefits. 

If you live in one of the minority of states that impose their own tax on Social Security benefits, you could be subject to state income taxes as well. 

If you were anticipating getting to keep your full Social Security check without giving a cut to the tax man, this rule could come as a shock and make budgeting more challenging. 

You don't want to be caught off guard by surprise taxes, unexpected forfeiture of benefits, or simply receiving less income than you expect because you aren't entitled to delayed retirement credits. So make sure you know the weird rules of the Social Security program when planning your retirement to develop a realistic picture of the financial help your benefits will provide. 

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