Q: I applied for Social Security benefits in March 2007 when I was 62 years old. After a month I found a job. On September of 2007, I called Social Security to stop payment of my benefits because I was earning over the limits. I was told that the following year it would be automatically processed. From then on every year I got a few months payment. Now Social Security has informed me that I received too much and my overpayment is $19,704.
A: When working Social Security recipients who are younger than full retirement age earn more than the annual earnings limit amount, their benefits will be reduced. The Social Security Administration likes to point out that these benefit reductions are “not truly lost because your benefit will be increased at your full retirement age to account for benefits withheld due to earlier earnings.” But as you have discovered, you can sometimes wind up owing money to Social Security that was not withheld properly.
The Social Security Administration is required to withhold $1 in benefits for each $2 you earned above the limit until the year in which you reach full retirement age. The year in which you reach full retirement age, you are allowed to earn more. The amount you may earn is adjusted annually. In 2007 when you retired, it was $12,960 ($1,080 per month) for retirees like you who were under full retirement age.
The Social Security Administration calculates benefit withholdings based on the amount you report that you will earn for the year, and then will withhold all benefit payments for a certain period of months to cover excess earnings. For example, say you received a Social Security benefit payment of $900 per month in 2007 ($10,800 for the year). Let’s say that during 2007 you worked and earned $24,450 or $11,490 over the earnings limit ($24,450 - $12,960). Social Security would withhold $5,745 in benefit payments covering slightly more than 6 months of your payments.
The overpayment amount that the Social Security Administration is claiming in your case may be due to several reasons. Here are some things that may affect you:
• Notification dates: Because you started working and received about 6 months of Social Security payments prior to your notification of Social Security, these payments may not have been properly accounted for in your withholdings and may form a substantial portion of the overpayment. It’s very important to notify Social Security, either in advance or immediately, if you work.
• Accurate earnings estimates: It’s important to accurately estimate your earnings. If you worked for someone else, Social Security will need your gross earnings prior to deductions for taxes. In addition, Social Security counts when the wages are earned, NOT when they are paid. This includes accumulated sick or vacation pay and bonuses.
• Changes in your earnings: Did you report increases in salary or commissions? You need to keep Social Security informed of higher earnings in order for your benefits to be accurately withheld.
• Someone else is working using your Social Security number: If you still can’t determine the cause of Social Security’s overpayment claim, check your earnings record with the Social Security Administration for accuracy. Identity theft is soaring and earnings from persons unknown may show up on your work record without your knowledge. It’s important to correct your record if this happens to you. If this is the case, in addition to checking your records with Social Security, you will need to contact the IRS. Otherwise, the IRS may send you a notice stating that you failed to report everything you earned and that you might owe taxes.
For help estimating how much your benefits should be, the Social Security website has an earnings test calculator. For more information about the earnings limits, get “How Work Affects Your Benefits” Social Security Publication No. 05-10069.