When I was fired from my full-time job of 30 years in 2009 at age 65, I immediately applied for Social Security for my wife and I to live on while looking for work. Not finding anything full time, I worked part time on a school bus for an hourly wage for the past 9 years. Even though my wife and I collect Social Security, my wages are taxed for it. While I don’t think this is fair, the real problem (to me) is the fact that my Social Security deductions over the past nine years don’t seem to result in an increase in the amount of Social Security we receive. Meanwhile, a friend, our age and a business owner, said that the amount he is taxed for SS as a sole proprietorship is somehow returned to him from time to time. So could you please explain what is happening here and if we need to be modified in some way?
Signed: Still works at 74
I cannot comment on your friend’s claim that as a sole proprietor his self-employed SS tax is somehow “returned to him from time to time”. However, I can tell you that the rules for business owners are the same as for those who don’t own a business, except that a business owner pays both the employee and employer portion of Social Security taxes.
Essentially, the only way you’ll pay Social Security now (through payroll taxes or self-employment taxes) is to increase your SS benefit amount if your income in a recent year exceeds your earnings in any of the 35 highest earning years during your career. life used to calculate your SS benefit. When your Social Security benefit was originally calculated, all years in your lifetime earnings history up to and including 59 years were adjusted for inflation and the highest earning 35 years were selected to develop your “Average Indexed Monthly Earnings” (AIME). A formula has been applied to your AIME to determine your “Primary Insurance Amount” or “PIA”. This is the amount you will receive if you claim benefits that begin in the month you reach full retirement age (FRA). If you applied at age 65, your SS benefit was reduced slightly from your PIA because you did before your FRA.
Although you have worked part-time and are still working, and you are paying Social Security at the same time, your SS personal benefit will not increase unless your current earnings exceed those in the 35 years originally used to determine your benefit when you claimed. The inflation adjustment has more influence on your income in recent years than you would expect; for example, for $50,000 earned in 1990, it would take more than $125,000 in income today to change your benefit. Remember that your Social Security contributions while you work do not go into a personal account for you. Everyone who works must contribute to Social Security, and the money paid is used to pay benefits to those who already receive Social Security. And that doesn’t change when you start collecting SS — if you continue to work, you’ll still have to pay Social Security taxes, and the money you pay goes into benefits for all recipients.
This article is for informational purposes only and does not constitute legal or financial guidance. It reflects the views and interpretations of AMAC Foundation staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its personnel are not affiliated with or endorsed by the Social Security Administration or any other government agency. To ask a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email [email protected]