When Should You Start Social Security Benefits

Before deciding to collect Social Security benefits, consider these tips to help you make an informed decision.


If you plan to continue working while receiving benefits, there are limits on how much you can earn each year between age 62 and full retirement age and still collect all your benefits However, once you reach full retirement age, your earnings do not affect your benefits, but they may be taxable as income.

And if you don’t need the income now, you may decide to wait beyond full retirement age to receive additional retirement credits. Or you can choose early retirement and invest your benefits elsewhere.


If you stop working, not only will you lose your paycheck, but you may also lose employer-provided health insurance. Although exceptions exist, most people will not be covered by Medicare until they reach age 65.

Your employer should be able to tell you if you will have health insurance benefits after you retire or if you are eligible for temporary continuation of health coverage. If your spouse is employed, you may be able to switch to their company’s health insurance.


If you qualify for benefits as a widow, widower, or surviving divorced spouse, you may choose to apply for survivor’s benefits now and delay your retirement benefit until later.

If you delay receiving your retirement benefit until your full retirement age or later, your retirement benefit will be larger.


Consider your family history and lifestyle when thinking about your life expectancy. You may need extra money in later years if you come from a family with long life expectancies. This is particularly important as you could potentially outlive your retirement savings, especially any investments with limits on how long they are paid.

Your life expectancy affects your retirement planning decisions. Knowing this helps you determine whether you should start receiving reduced benefits at age 62 or wait until age 70 to receive a higher payment.

How Are Social Security Benefits Taxes

While the general rule is that Social Security benefits are taxable, things like filing status and other sources of income determine how much tax you’ll pay.


Those with little or no additional income outside of Social Security typically won’t pay any taxes on those benefits. Income from wages, self-employment income, and investment income, including tax-exempt interest, are all factors for determining how much of your benefits are taxable.


If you’re married and file a joint return, you and your spouse must combine your incomes and Social Security benefits when figuring the taxable portion of your benefits.


You’ll never pay taxes on more than 85% of your Social Security income. How much you’ll pay depends on your total combined retirement income, calculated as half of your Social Security payments plus all of your other income.

The limit for singles and heads of households is $25,000, and joint filers have a $32,000 limit. If you exceed these limits, between 50% and 85% of your Social Security benefits will be taxable. The calculation is not straightforward, so be sure to speak with your tax professional if you’re expecting to start receiving Social Security soon.


Along with federal taxes, some states also tax Social Security benefits.


If you owe taxes on your Social Security benefits, you can pay them when you file your tax return in April, just like you did when you were working.

Alternatively, you can make estimated payments throughout the year to avoid a big expense at tax time. You can also elect to withhold taxes from your payments by completing Form W-4V (voluntary withholding) and sending it to the Social Security Administration. You can opt to have between 7% and 22% withheld.

When’s the Right Time to Collect Social Security?

Choosing when you’ll start collecting Social Security benefits is a personal decision and the right time to begin varies from person to person.


You’re eligible to begin collecting Social Security as early as age 62, but that means you’ll receive a lower monthly payment, in some cases nearly 30% less than if you wait until you reach what the Social Security Administration calls your full retirement age. Depending on when you were born, this is somewhere between ages 66 and 67. Waiting four or five more years can increase your monthly and lifetime payout significantly.

Waiting the extra years until you reach full retirement age may not be a viable option if you’re no longer working, have limited retirement savings and need the money to pay your bills. In that case, collecting Social Security is the right move.


If you’re still working or have retired but have other accessible retirement funds, waiting until you’re age 70 to start collecting may make sense. That’s because for each year you wait beyond your full retirement age, up to age 70, your annual benefit increases by 8%. That means you could see up to a 32% increase in your monthly payment.


Maybe you’re thinking about claiming your benefits at age 62 and investing the proceeds because you don’t need the money. Keep in mind that if you invest those funds in the stock market, there’s a chance you’ll lose some money—or you could earn more than 8% annually.

Depending on your other sources of retirement income, this may or may not be the right option for you. Check with your financial professional to discuss your situation.


Some non-working spouses may be entitled to payments of up to 50% of the working spouse’s benefit amount. These spousal payments don’t decrease the amount of benefit received by the working spouse.

Also, you may be able to collect benefits based on your former spouse’s earning record if you were married at least ten years, been divorced for at least two continuous years, are currently unmarried and at least age 62.

March 2021 Short Bits


The IRS successfully delivered millions of stimulus payments during the COVID-19 pandemic last year. Within two weeks of the passage of the CARES Act, the IRS distributed $147 billion to more than 81 million people. By comparison, in 2008, the last time stimulus payments were issued by the IRS, it took 75 days to get the first payments out. With the launch of the Get My Payment tool, an additional 16.6 million requests for payment were received. By the end of October 2020, the IRS had delivered approximately $270 billion in stimulus relief to taxpayers.


Approximately 70 million Americans are seeing a 1.3% increase in their Social Security benefit payments in 2021. Federal benefit rates increase when the cost-of-living rises, as measured by the Department of Labor’s Consumer Price Index. These cost of living adjustments were first enacted in 1972 and automatic annual adjustments began in 1975. The year that saw the highest adjustment was 1980 with a 14.3% increase, while there have been several years with no adjustment, most recently 2016.


National Women’s History Month goes back to 1857 but wasn’t officially recognized by Congress until 1981. According to the U.S. Census Bureau, women age 85 and older outnumber men in the same age bracket two to one. And overall, there are slightly more females than males in the U.S. In 2018, there were 166 million women compared with only 161 million males and earnings difference still exist. While 58% of women, age 16 and older, participate in the workforce they only earn 82% of what males earn for similar work.

The 2021 “Social Security wage base” is increasing

If your small business is planning for payroll next year, be aware that the “Social Security wage base” is increasing.

The Social Security Administration recently announced that the maximum earnings subject to Social Security tax will increase from $137,700 in 2020 to $142,800 in 2021.

For 2021, the FICA tax rate for both employers and employees is 7.65% (6.2% for Social Security and 1.45% for Medicare).  

For 2021, the Social Security tax rate is 6.2% each for the employer and employee (12.4% total) on the first $142,800 of employee wages. The tax rate for Medicare is 1.45% each for the employee and employer (2.9% total). There’s no wage base limit for Medicare tax so all covered wages are subject to Medicare tax.

In addition to withholding Medicare tax at 1.45%, an employer must withhold a 0.9% additional Medicare tax from wages paid to an employee in excess of $200,000 in a calendar year.

Employees working more than one job

You may have employees who work for your business and who also have a second job. They may ask if you can stop withholding Social Security taxes at a certain point in the year because they’ve already reached the Social Security wage base amount. Unfortunately, you generally can’t stop the withholding, but the employees will get a credit on their tax returns for any excess withheld.

Older employees 

If your business has older employees, they may have to deal with the “retirement earnings test.” It remains in effect for individuals below normal retirement age (age 65 to 67 depending on the year of birth) who continue to work while collecting Social Security benefits. For affected individuals, $1 in benefits will be withheld for every $2 in earnings above $18,960 in 2021 (up from $18,240 in 2020).

For working individuals collecting benefits who reach normal retirement age in 2021, $1 in benefits will be withheld for every $3 in earnings above $46,920 (up from $48,600 in 2020), until the month that the individual reaches normal retirement age. After that month, there’s no limit on earnings.

Contact us if you have questions. We can assist you with the details of payroll taxes and keep you in compliance with payroll laws and regulations.

© 2020

Employers have questions and concerns about deferring employees’ Social Security taxes

The IRS has provided guidance to employers regarding the recent presidential action to allow employers to defer the withholding, deposit and payment of certain payroll tax obligations.

The three-page guidance in Notice 2020-65 was issued to implement President Trump’s executive memorandum signed on August 8.

Private employers still have questions and concerns about whether, and how, to implement the optional deferral. The President’s action only defers the employee’s share of Social Security taxes; it doesn’t forgive them, meaning employees will still have to pay the taxes later unless Congress acts to eliminate the liability. (The payroll services provider for federal employers announced that federal employees will have their taxes deferred.) 

Deferral basics

President Trump issued the memorandum in light of the COVID-19 crisis. He directed the U.S. Secretary of the Treasury to use his authority under the tax code to defer the withholding, deposit and payment of certain payroll tax obligations.

For purposes of the Notice, “applicable wages” means wages or compensation paid to an employee on a pay date beginning September 1, 2020, and ending December 31, 2020, but only if the amount paid for a biweekly pay period is less than $4,000, or the equivalent amount with respect to other pay periods.

The guidance postpones the withholding and remittance of the employee share of Social Security tax until the period beginning on January 1, 2021, and ending on April 30, 2021. Penalties, interest and additions to tax will begin to accrue on May 1, 2021, for any unpaid taxes.

“If necessary,” the guidance states, an employer “may make arrangements to collect the total applicable taxes” from an employee. But it doesn’t specify how.

Be aware that under the CARES Act, employers can already defer paying their portion of Social Security taxes through December 31, 2020. All 2020 deferred amounts are due in two equal installments — one at the end of 2021 and the other at the end of 2022. 

Many employers opting out

Several business groups have stated that their members won’t participate in the deferral. For example, the U.S. Chamber of Commerce and more than 30 trade associations sent a letter to members of Congress and the U.S. Department of the Treasury calling the deferral “unworkable.”

The Chamber is concerned that employees will get a temporary increase in their paychecks this year, followed by a decrease in take-home pay in early 2021. “Many of our members consider it unfair to employees to make a decision that would force a big tax bill on them next year… Therefore, many of our members will likely decline to implement deferral, choosing instead to continue to withhold and remit to the government the payroll taxes required by law,” the group explained.

Businesses are also worried about having to collect the taxes from employees who may quit or be terminated before April 30, 2021. And since some employees are asking questions about the deferral, many employers are also putting together communications to inform their staff members about whether they’re going to participate. If so, they’re informing employees what it will mean for next year’s paychecks.

How to proceed

Contact us if you have questions about the deferral and how to proceed at your business. 

© 2020