Ask Liz Weston

Get smart with your money

Social Security

Q&A: Finding income for widow and children

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Dear Liz: You recently answered a question from someone about Social Security survivor benefits for her grandchildren. The young father who died had been paid under the table, which meant his employment didn’t qualify the children for survivor benefits. It’s a long shot, but perhaps the young man filed his taxes as if he were self-employed, in which case his employment would count toward Social Security’s requirements. If no returns were filed, perhaps the family could consider preparing and filing the returns for the last several years. That could trigger a tax bill, but the cost probably would be outweighed by the potential benefits to these young children.

Answer: That’s certainly an option worth exploring with a CPA or tax attorney, especially if the father had a bank account or some other way to document the cash he received.

As mentioned in the previous column, Social Security survivor benefits can be paid to the children of qualified deceased workers until the kids turn 18 (or 19, if they are still in high school full time), but the worker needs to have paid into Social Security a certain length of time. The children’s mother also might be eligible for benefits, if she was married to the father. As a widow caring for the deceased person’s minor children, she would be entitled to benefits until the youngest child turned 16.

Q&A: Social Security doesn’t prevent working

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Dear Liz: I have a friend who is in her early 70s and earns income from her own business but she said that she also collects Social Security. How is this possible? I thought that a person cannot earn income from a job or self-employment while also collecting Social Security. Am I wrong?

Answer: Quite wrong.

Nothing prevents people from working while receiving Social Security. If they’re receiving benefits before their full retirement age — which is currently 66 — their checks are subject to the earnings test. That test reduces the amount they receive by $1 for every $2 they earn over a certain limit, which in 2019 was $17,640.

Once people reach full retirement age, the earnings test goes away and they no longer have to worry about its effect on their checks.

Q&A: Working past 70

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Dear Liz: If I continue to work after 70, will Social Security taxes still be deducted from my check? I understand my benefits will cap out at 70, so why would I need to still pay into the fund?

Answer: Because Social Security is insurance, not a bank account.

And it may not be true that your benefit maxes out at 70, if you continue to work. It’s true that delayed retirement credits no longer increase your benefit if you delay starting Social Security past age 70. But as long as you continue working, you’re potentially growing your benefit.

Your Social Security check is based on your 35 highest-earning years, adjusted for inflation. If you make more in a current year than you made in one of those previous highest-earning years, the current year will be substituted for the earlier one. That in turn can increase your benefit. This can happen at any age, including after you start benefits.

You might not see much increase, of course, or any increase at all if you’ve earned a high income for a long time. If you exceeded the maximum income limits subject to Social Security taxation every year for 35 years, your benefit wouldn’t increase with additional work. (In 2019, for example, the maximum income limit is $132,900; you don’t pay Social Security tax on earnings above that level, although you continue to pay Medicare tax.)

On the other hand, your benefits won’t be stopped once you collect as much from the system as you paid in. You will continue receiving benefits for as long as you live, even if that amount far exceeds what you’ve paid in taxes. That’s insurance worth paying for.

Q&A: This nurse needs a Social Security checkup. Here’s how to check yours

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Dear Liz: I’m a certified nurse midwife who is salaried. When we are fully staffed, I work 55 hours a week on average. If we cover extra shifts, we are paid a lump sum rather than hourly. (If we were paid hourly, it would work out to far less than minimum wage.) We are paid twice a month, but my pay stub shows that I only work 70 hours per pay period. I work almost that many hours in a single week! When I work extra shifts, it is reported on my check under “miscellaneous” with the lump sum listed. I asked our administrators about this and they just told me it wasn’t a big deal, but I’m not convinced that’s true. Do the hours reported on my paycheck affect my Social Security income later? I just don’t want to lose out on Social Security benefits when I work my butt off!

Answer: The hours you work don’t affect your future Social Security benefit, but your earnings do. At least they should. Your employer is supposed to report your full salary to Social Security, and to deduct the appropriate amount of Social Security tax from your paychecks. If your pay is underreported, your future benefits could be shortchanged.

Here’s a quick way to check if your earnings are being reported properly. On your paycheck, there should be a line that says either “Social Security,” “OASDI” or “FICA.” If the line says Social Security or FICA, the amount listed should be 6.2% of the money you earned for the pay period, up to a maximum annual amount of $8,239.80 for 2019. (There’s a ceiling on the amount of wages subject to Social Security taxes, which this year is $132,900.)

Some employers don’t break out Social Security taxes from Medicare taxes, and include them both in a line for FICA, which stands for Federal Insurance Contributions Act. The FICA amount should be your Social Security tax (6.2% of your earnings up to $132,900) plus 1.45% for Medicare. (There’s no cap, so all earnings are subject to the Medicare tax.)

If the tax amounts shown don’t include that “miscellaneous” lump sum, please call the IRS at 1-800-829-1040 to report the situation.

Q&A: Triggering the windfall elimination provision

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Dear Liz: After working and paying into Social Security for more than 40 years, I took a city job at age 60. This job does not pay into Social Security and will afford me a small pension upon retirement in a few years (I’m now 64). Will this pension amount be deducted from my Social Security payments?

Answer: Normally, people who get pensions from jobs that didn’t pay into Social Security face the “windfall elimination provision,” which can reduce any Social Security benefits they may have earned. If, however, you have 30 or more years of “substantial earnings” from a job that paid into Social Security, then this provision does not apply. The amount that counts as “substantial earnings” varies by year; in 2019, it’s $24,675.

Q&A: Death doesn’t take a financial holiday. Here’s a cautionary tale

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Dear Liz: My daughter has two children, ages 2 and 4. Recently the children’s father took his own life. He was 27. The job he worked as long as I knew him paid him in cash, so he didn’t pay into Social Security. Does this mean the children cannot receive survivor benefits from Social Security?

Answer: If the father never worked at a job that paid into Social Security, your grandchildren — and your daughter — won’t qualify for the survivor benefits they could have received had he been paid legally rather than under the table.

Their one hope is if he had a previous job that did pay into Social Security.

At 27, he would have needed at least six quarters of coverage to trigger survivor benefits, says Bill Meyer, founder of Social Security Solutions, a claiming strategies site.

The older a person is, the more quarters are needed to qualify for benefits, but no one needs more than 40 quarters. The amount of earnings required for a quarter of coverage is $1,360 in 2019. Once you earn $5,440, you’ve earned your four quarters for the year.

If the father had earned those six quarters, his death would trigger survivor benefits for his children that typically last until age 18 (or until 19, if they are still in high school full time). Your daughter also would be entitled to benefits until the younger child turned 16, because she’s caring for the deceased person’s minor children.

It’s possible this young man was paid under the table because he was not able to work legally in the U.S. If that’s the case, he and his family wouldn’t qualify for Social Security benefits even if payroll taxes had been deducted. If he opted for cash because he or his employer didn’t want to pay taxes, though, that was a choice that had expensive repercussions for the people he left behind.