What Income Counts Against Social Security
Social Security is a crucial safety net for millions of Americans, providing financial support during retirement, disability, or surviving a deceased family member. However, not all income is considered when calculating Social Security benefits. Understanding what income counts against Social Security is essential for beneficiaries to make informed decisions about their financial planning.
Wages and Self-Employment Income
The primary source of income that counts against Social Security is wages earned from employment. This includes both traditional full-time and part-time jobs, as well as self-employment income. When you earn income from work, you pay Social Security taxes, which contribute to your future benefits. The amount of Social Security benefits you receive is based on your average indexed monthly earnings (AIME) during your highest-earning 35 years of work.
Earnings From Work After Retirement
Once you reach full retirement age, you can still earn income from work without affecting your Social Security benefits. However, if you choose to work and are under full retirement age, your benefits may be reduced. For every $2 you earn above the annual limit, $1 will be deducted from your Social Security check. This limit changes each year, so it’s essential to stay informed about the current threshold.
Unemployment Benefits
Unemployment benefits are not counted against Social Security. If you become unemployed and receive unemployment insurance, it will not affect your Social Security benefits. However, it’s important to note that the amount of unemployment benefits you receive may be subject to income tax.
Government Pensions
Government pensions, including those from federal, state, and local governments, may or may not count against Social Security. If you receive a government pension and also have earnings from other sources, the amount of your Social Security benefits may be reduced. This reduction is known as the Windfall Elimination Provision (WEP) or Government Pension Offset (GPO), depending on the type of pension you receive.
Investment Income
Investment income, such as dividends, interest, and capital gains, does not count against Social Security. This includes income from stocks, bonds, mutual funds, and real estate investments. However, if you sell an investment and realize a capital gain, the proceeds from the sale may be subject to capital gains tax.
Understanding the Rules
It’s crucial to understand the rules surrounding what income counts against Social Security to make informed decisions about your financial planning. By staying informed and consulting with a financial advisor, you can ensure that you maximize your Social Security benefits and make the most of your retirement years. Remember, the more you know about Social Security, the better equipped you’ll be to secure your financial future.
