Social Security provides life insurance along with retirement and disability. When a worker dies, relatives may qualify for survivor’s benefits. Widowed spouses, children and even parents may receive benefits that function as a life insurance annuity with a monthly payment. A spouse with a child under the age of 16 may collect survivor’s benefits at any age. An widowed spouse may collect benefits as early as age 60, or age 50 if disabled. A working spouse may collect survivor’s benefits before full retirement, subject to Social Security penalties and federal income taxes.
Full Retirement Age
Full retirement age is key to Social Security’s treatment of survivor's benefits. Individuals born between 1943 and 1954 reach full retirement age at 66. Those born from 1955 to 1959 reach full retirement age between 66 and 67, and those born after 1959 reach full retirement age at 67. If you are full retirement age when you file for survivor's benefits, you do not incur Social Security penalties.
Social Security imposes a penalty on those who collect early retirement funds and continue to work. Social Security considers a survivor collecting benefits at age 60, or 50 if disabled, in this class. Anyone collecting survivor benefits before full retirement age may be subject to a penalty for earned income in excess of $14,160 in 2011. For every $2 you earn in excess of the limit of $14,160, Social Security charges $1 in penalty. Your earnings affect only your benefits, not others who collect survivor's benefits on the work history of the deceased.
Year of Full Retirement Age
The year you reach full retirement age has different penalty rules. You may earn $37,680 that year without penalty under the 2011 rules. For every $3 you make in excess of that amount, Social Security charges $1 in penalty. The month you reach full retirement age, all penalties stop. You may earn any amount of money after full retirement age and no Social Security penalties apply.
Federal Income Tax
In addition to penalties, you may owe federal income taxes on your survivor's benefits if you work. The Internal Revenue Service bases taxes on combined income. This figure is half of your annual Social Security income plus nontaxable interest and your adjusted gross income. If this totals between $25,000 and $34,000 in 2011 and you file as a single taxpayer, you owe federal income taxes on 50 percent of your Social Security benefits. If your combined income is more than $34,000 and you are single, you pay taxes on 85 percent of your Social Security benefits. Married filing jointly status incurs taxation at $32,000 in 2011. Taxation of 50 percent of Social Security benefits is from $32,000 to $44,000 combined income. The IRS taxes 85 percent of Social Security benefits above $44,000 for married persons filing jointly.