Q: I've been collecting Social Security for a year, since I turned 62. I've also just started back to work. I won't be earning over the $14,000 annual limit that would reduce my benefit. Can you tell me why my employer is taking Social Security tax out of my pay check? Will I get this money back? Should I be paying at all? And if not, how do I go about seeing to it that this deduction isn't taken out of my pay? -- JV via email
A: There's bad news and good news. Your employer's not making a mistake; but you may get some of this money back.
We all tend to think of the money we pay to Social Security as contributions to fund our retirement -- not unlike a 401(k) contribution. But in reality of course, it's a tax. Whenever you work in a job that is covered by Social Security, your employer must deduct Social Security and Medicare taxes from your salary. He must also pay the employer's share of those taxes.
There's no exemption for people who are already receiving Social Security benefits. Your earnings are reported to the Social Security Administration every year, just like any other worker's earnings.
There's no exemption for self-employment earnings above $400, either. If you're self-employed and net more than $400, you must report those earnings, and pay Social Security and Medicare taxes on them, when you file your annual income tax return.
Okay, what about the good news?
Working after you've started collecting Social Security can boost your benefit. The reason: That benefit is based on your earnings during the 35 years in which you earned the most.
We all tend to think of the money we pay to Social Security as contributions to fund our retirement -- not unlike a 401(k) contribution. But in reality of course, it's a tax. Whenever you work in a job that is covered by Social Security, your employer must deduct Social Security and Medicare taxes from your salary. He must also pay the employer's share of those taxes.
There's no exemption for people who are already receiving Social Security benefits. Your earnings are reported to the Social Security Administration every year, just like any other worker's earnings.
There's no exemption for self-employment earnings above $400, either. If you're self-employed and net more than $400, you must report those earnings, and pay Social Security and Medicare taxes on them, when you file your annual income tax return.
Okay, what about the good news?
Working after you've started collecting Social Security can boost your benefit. The reason: That benefit is based on your earnings during the 35 years in which you earned the most.
"Each year, we review the records for all Social Security recipients who work," says Jane Zanca, an agency spokeswoman in New York City. "If your latest year of earnings turns out to be one of your 35 highest years, we recalculate your benefit and pay you any increase due."
If you're making less than $14,000 a year, you're not earning a big salary by today's standards. But even after adjusting for changes in average compensation over the years, you may be earning more than you did 34 years ago. If so, your current earnings can increase your monthly benefit by replacing that earlier, lower-paid year in the Social Security Administration's calculation.
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If I return to work at age 70 and am already collecting Social Security benefits, will Social Security and Medicare taxes be deducted from my earnings?
Posted by: Barbara Oster | 04/28/2010 at 08:54 PM
Lynn replies: Yes. As this post explains, these taxes are deducted from all paychecks regardless of your age and whether or not you're collecting Social Security.
Posted by: lynn brenner | 05/06/2010 at 12:00 PM