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Social Security Income

1999 FICA and Self Employment Tax * Social Security Earnings Limit for 1999 * What Income Counts? * Special Rule - First Year of Retirement * Tax on Social Security Benefits * Age to Receive Full Social Security Benefits * Increases for Delayed Retirement * When to Retire * Personal Earnings and Benefit Estimate Statement * Signing Up for Social Security * Disability Benefits * What is Medicare * Information for People on Medicare * Quick Chart of Social Security - Family, Survivor, Disability Benefits * Go Back to Passive Income * Go Back to Tax Planning Guide Index * Forward to Adjustments to Income
1999 FICA and Self Employment Tax
Taxable wages for Social Security Up to $72,600
Taxable wages for Medicare All
Tax rate for Social Security 6.2%
Tax Rate for Medicare 1.45%
Maximum Tax - Social Security $4,501.20
Maximum Tax - Medicare No Limit
Social Security rate for self-employed 12.4%
Medicare rate for self-employed 2.9%

Social Security Earnings Limit for 1999
Under Age 65 $9,600 For every $2 over the limit $1 is withheld from benefits
Ages 65-69 $15,500 For every $3 over the limit $1 is withheld from benefits
Age 70 and over No limit on earnings

What Income Counts?

Wages, salaries and commissions count toward Social Security's earnings limits when earned NOT when paid. If you are self-employed, only your net earnings from self-employment count towards the earnings limit, when paid NOT when earned.

Exception: Net self-employment does not count toward the earnings limit if paid in a year after the retiree became eligible for Social Security, and it was earned before the retiree became eligible for Social Security benefits.

Special Rule - First Year of Retirement

When people retire in mid-year, they may have already earned more than the yearly earnings limit before they retire. A special rule applies to earnings in the first calendar year of retirement. Full Social Security benefits can be received for any month in which earnings do not exceed the monthly limit, regardless of your yearly earnings.

    For 1999, a person is considered retired if:
  1. Monthly earnings are less than:
  2. Self-employed and does not perform "substantial" services in the business. In general, if you work more than 45 hours a month in self-employment, you are not retired; if you work less than 15 hours a month, you are retired. Work between 15 and 45 hours a month may be considered substantial if involved in management or a highly-skilled occupation.

Tax on Social Security Benefits

A portion of Social Security benefits is taxed if substantial income is received in addition to Social Security benefits.

Single return: If combined income is between $25,000 and $34,000; up to 50% of benefits are taxable. If combined income is above $34,000; 85% of benefits are taxable.

Joint return: If combined income is between $32,000 and $44,000; up to 50% of benefits are taxable. If combined income is above $44,000, 85% of benefits are taxable.

Married filing separate return: If the taxpayer lived apart from spouse all year, taxation of benefits is computed the same as for a single person. If the taxpayer lived with the spouse at any time during the year, the taxpayer will probably pay tax on benefits regardless of income.

When to Retire

Social Security benefits are based on a person's earnings averaged over most of his or her working career. Thus, higher life time earnings result in higher benefits and years of no earnings or low earnings result in lower benefits. Benefits are not, as some people think, based on the last five years of a person's employment; nor does 40 credits (quarters) make a person eligible for the maximum Social Security benefit. Earning 40 credits simply makes a person eligible for retirement benefits at a certain age; it has nothing to do with the amount of his or her benefits. The benefit amount is affected by the age at the time a person starts receiving benefits. If you start your retirement at age 62, the earliest possible retirement age, your benefit will be lower than if you waited until a later age.

The usual retirement age for people retiring now is age 65. Social Security calls this "full retirement age" and the benefit that is payable is considered the full retirement benefit. Because of longer life expectancies, the full retirement age will be increased in gradual steps until it reaches age 67. This change starts in the year 2003, and it affects people born in 1938 and later. If you take early retirement, your benefits will be permanently reduced based on the number of months you will receive checks before you reach full retirement age.

If your full retirement age is 65, the reduction for starting Social Security at age 62 is about 20%; at age 63, it is about 13 1/3%, and at age 64, it is about 6 2/3%. If your full retirement age is older than 65 (born after 1937) you still will be able to retire at age 62, but the reduction in benefits will be greater. If your full retirement age is 67, the reduction for starting your Social Security at age 62 is about 30%, at 63, it is about 25%, at age 64, it is about 20%, at age 65, it is about 13 1/3%; and at age 66, it is about 6 2/3%.

Age to Receive Full Social Security Benefits
Year of Birth Full Retirement Age
1937 or earlier 65
1938 65 and 2 months
1939 65 and 4 months
1940 65 and 6 months
1941 65 and 8 months
1942 65 and 10 months
1943 - 1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 and later 67

    If you continue working full time beyond full retirement age, you can increase your Social Security benefit in two ways:
  1. Each additional year you work adds another year of earnings to your Social Security record.
  2. In addition, your benefit will be increased by a certain percentage each year until you retire or reach age 70.

Increases for Delayed Retirement
Year of Birth Yearly Rate of Increase
1917-1924 3%
1925 - 1926 3.5%
1927 - 1928 4%
1929 - 1930 4.5%
1931 - 1932 5%
1933 - 1934 5.5%
1935 - 1936 6%
1937 - 1938 6.5%
1939 - 1940 7%
1941 - 1942 7.5%
1943 or later 8%

*If you decide to delay your retirement, be sure to still sign up for Medicare at age 65 (sometimes medical insurance can cost more when you delay applying for it).

Personal Earnings and Benefit Estimate Statement

Since your Social Security benefit is based on your earnings averaged over your working lifetime, it is essential your Personal Earnings and Benefit Estimate Statement (PEBES) be correct. It is a good idea to contact Social Security and review your PEBES periodically for accuracy to receive a personalized benefit estate. Call Social Security at 1-800-772-1213, and ask for a Form 7004, Request for Earnings and Benefit Estimate Statement; or visit their Website at www.ssa.gov to request a PEBES. In October, the Social Security Administration will begin mailing earnings and benefits statements each year to all workers age 25 and older who are not already receiving money Social Security benefits.

Signing Up for Social Security

To apply for Social Security benefits call 1-800-772-1213, or make an appointment to visit any Social Security office to apply in person. When planning to retire you should be thinking about making an application with the Social Security Administration.

    Information needed:
  1. Social Security number
  2. Birth Certificate
  3. W-2 forms or self-employment tax return for last year
  4. Military discharge papers (if had military service)
  5. Spouse's birth certificate and Social Security number if he or she is applying for benefits.
  6. Children's birth certificates and Social Security numbers, if applying for children's benefits
  7. Proof of U.S. citizenship or lawful alien status if not born in the U.S.
  8. Name of bank and account number so benefits can be directly deposited.

Social Security requests you submit original documents or copies certified by the issuing office. Social Security will make photocopies and return original documents. Don't delay in applying for benefits because you don't have all the information; the Social Security Administration can help you get it.

Disability Benefits

Monthly income for an insured worker who becomes disabled for an extended period of time. Disability benefits are computed as if you had retired at age 65 in the year the disability began. You are considered disabled if you have a physical or mental condition that prevents you from doing substantial gainful work which is expected to last at least 12 months or resulting in death. Benefit payments begin after a waiting period of five full calendar months after the onset of the disability.

What is Medicare?


Medicare is the health insurance program for people 65 and older and for some disabled persons under 65. Medicare protection is one of two kinds:
  1. Hospital Insurance - Medicare Part A
  2. Medical Insurance for doctor's bills and related expenses - Medicare Part B

To be sure that your coverage starts promptly, get in touch with your Social Security office three months before your 65th birthday. You will then receive a health insurance card showing your Medicare claim number.

Medicare provides only for care that is "reasonable and necessary" for the treatment of an illness or injury. It pays nothing, for example, toward the cost of a routine physical checkup. Nor will it pay for hospitalization if your illness does not require hospital care. Furthermore, Medicare only pays for treatment in the United States and only pays for services provided by a "participating" organization.

Information for People on Medicare


Hospital Insurance (Part A)
1999
Premium Deductible* 0-30 quarters employment $ 309
Premium Deductible* 30-40 quarters employment $ 170 per month
For first 60 days in a hospital, patient pays (Deductible) $ 768
For 61st through 90th days in a hospital, patient pays $ 192 per day
Beyond 90 days in a hospital, patient pays (for up to 60 more days) $ 384 per day
For first 20 days in a skilled nursing facility, patient pays $ 96 per day
*Cost for those who are not eligible for Social Security Benefits, but who still want Medicare coverage.

Medical Insurance (Part B)
1999
Premium $ 45.50 per month (may be higher if enrolled late)
Deductible $ 100.00 After the patient has paid the deductible, Part B pays for 80% of covered services.

Quick Chart of Social Security - Family, Survivor, Disability Benefits

Family Benefits (Worker Living) Survivor Benefits (Worker Deceased) Disability Benefits (Worker Disabled)
Eligibility

for

Benefits
When a worker begins collecting Social Security retirement benefits, the other family members who may also be eligible for benefits are:

  • Spouse of worker if he/she is age 62 or older (unless he/she collects a higher Social Security benefit on his/her own record).
  • Spouse of worker at any age if he/she is caring for the worker's child (child must be under age 16 or disabled and receiving Social Security benefits).
  • Worker's children, if they are unmarried and:

- Under age 18; or

- Under age 19 but in elementary or secondary school as a full-time student; or

- Age 18 or older and severely disabled (disability must have started before age 22).

Family members of a deceased worker who may collect benefits if the worker earned enough credits while working:
  • Widow(er) age 60 or older.
  • Widow(er) age 50 or older and disabled,
  • Widow(er) at any age if she/he is caring for the worker's child under age 16 or a disabled child who is receiving Social Security benefits.
  • Children if they are unmarried and:

- Under age 18; or

- Under age 19 but in an elementary or secondary school as a full-time student; or

- Age 18 or older and severely disabled (disability must have started before age 22).

  • Dependent parents age 62 or older.
Disability benefits are paid to a worker at any age. At age 65 if a worker is receiving disability benefits, they become retirement benefits although the amount remains the same.

Family members who may also be eligible for benefits are:

  • Spouse of worker if he/she is age 62 or older (unless he/she collects a higher Social Security benefit on his/her own record).
  • Spouse of worker at any age if he/she is caring for the worker's child (child must be under age 16 or disabled and receiving Social Security benefits).
  • Worker's children, if they are unmarried and:

- Under age 18; or

- Under age 19 but in elementary or secondary school as a full-time student; or

- Age 18 or older and severely disabled (disability must have started before age 22).

Ex-Spouse

(Divorced)

Benefits
Ex-spouse (even if worker is remarried) is entitled to benefits (at times even if the worker is not receiving benefits) if:

Been married to the worker for at least 10 years;

At least 62 and unmarried;

Not eligible for an equal or higher benefit on his/her own record or on someone else's record.

Note: Amount of benefits an ex-spouse receives, does not affect the amount of benefits worker's family receives.

Ex-spouse (even if worker remarried) is entitled to benefits if:

At least age 60 (or age 50 if disabled) and been married to the worker for at least 10 years;

Any age and caring for a child who is eligible for benefits on the worker's record;

Not eligible for equal or higher amount of his/her own record;

Not currently married, unless remarriage occurred after age 60 (after age 50 if disabled);

Note: Amount of benefits an ex-spouse receives, does not affect the amount of benefits worker's family receives.

Ex-spouse (even if worker is remarried) is entitled to benefits (at times even if the worker is not receiving benefits) if:

Been married to the worker for at least 10 years;

At least 62 and unmarried;

Not eligible for an equal or higher benefit on his/her own record or on someone elses' record.

Note: An amount of benefits an ex-spouse receives, does not affect the amount of benefits worker's family receives.

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