What Is Deducted From Social Security Retirement Benefits?

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Social Security benefits are a solid means of support for millions of retirees. When economic weakness and low interest rates sap the income-producing power of some of your assets, Social Security payments are a financial resource upon which you can rely during difficult times. Also, Social Security benefits, like stocks and bonds or a well-stocked bank account, can help you realize your retirement dreams. Be aware, however, that your benefits may be reduced for a number of reasons:

Effects of Full and Early Retirement on Benefits

When you apply for Social Security retirement benefits, the amount of those benefits is determined in part by the full retirement age that is set by the Social Security Administration for someone born in your year of birth. A second determinant is your actual age when you apply for those benefits. A third factor is the number of months between the day you applied for early retirement and your full retirement age.

If your full retirement age is 66,​ and you retire at 66, you’ll receive your full, monthly Social Security benefits. If, however, you take early retirement at age 62,​ or any time thereafter but before your 66th birthday, your benefits check will be as little as 70 percent of the full benefits.

Earned Income and Benefits

The Social Security Administration applies the earnings test to "earned income" only. Earned income includes commissions, bonuses, salaries, severance pay and other employer payments. But if you're self-employed, earned income includes your company's profits. Earned income excludes investment income, capital gains, pension income and annuity payments.

Federal Income Tax and Benefits

Federal income tax might reduce the amount of Social Security benefits that you receive. Two factors that determine whether you owe federal tax on your benefits are your combined income and the income thresholds which are set by the Internal Revenue Service.

2020 Income Thresholds:​ If you file an individual tax return and earn more than $25,000 per year, your Social Security benefits may be taxed. For those who file a joint return, the income threshold is $32,000.

Read More:How Do Income Taxes Work?

State Income Tax and Benefits

State income tax may also reduce the Social Security benefits that you receive. Thirteen states tax Social Security benefits. Some tax your benefits in their entirety and others tax a portion of them according to your age or income level.

Twenty-six states either exclude Social Security benefits from taxable income or impose no state tax. Twelve additional states tax your benefits but exempt that portion of your benefits that are taxed at the federal level.

Visit TaxAdmin.org and search for your state to learn more about your state’s tax code.

Medicare Part B Premiums

Retirees who enroll in Medicare Part B pay a monthly premium for coverage. Medicare bases your premium on your income.

For instance, in 2020, if you file a single return and your income is ​$87,000 or less​, or a joint return and your income is $174,000 or less, you will pay a standard Part B monthly premium of ​$144.60​. If, however, you file a single return and your income is $500,000​ or more, or you file a joint return and your income is $750,000 or more, your premium is ​$491.60​.

Once you enroll in Part B, Medicare’s administrator, the Centers for Medicare and Medicaid Services (CMMS), can deduct the premium automatically from your Social Security benefits payment. If you prefer, the CMMS can bill you.

Overpayment of Benefits

If Social Security overpays your Social Security benefits, the agency will notify you. The agency will alert you to your repayment options, and your appeal and waiver rights. The agency will then withhold the full amount of your benefit each month, unless you ask that a lesser amount be withheld.

Garnishments and Benefits

The Social Security Administration identifies the following instances for which your Social Security benefits may be garnished:

  • Enforcement of child, spousal or family support obligations
  • Court-ordered victim restitution
  • Collection of unpaid federal taxes
  • Withholding to satisfy a current year federal income tax liability
  • Non-tax debt owed to other Federal agencies according to the Debt Collection Act of 1996 (Public Law 104-134).

Social Security benefits provide financial support for millions of retirees. Social Security payments are a financial resource upon which you can rely, but be aware, however, that you might see your benefits reduced for several reasons.