Social Security In 30 Minutes, Volume 2: Disability Benefits: SSDI and SSI eligibility, application requirements, work incentives, benefits for children, resource limits, and more
102
Social Security In 30 Minutes, Volume 2: Disability Benefits: SSDI and SSI eligibility, application requirements, work incentives, benefits for children, resource limits, and more
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Overview
Millions of Americans have disabilities. Social Security SSDI and SSI benefits can help cover the loss of income that occurs due to disability. Whether you or a family member became disabled following an accident or medical emergency, or were born with a severe medical condition, this quick guide can explain eligibility, application steps, return-to-work programs, and how to deal with documentation, appeals, and other bureaucratic processes. Other topics include:
- Taxes on Social Security disability benefits
- The government's definition of "disability"
- Best practices for dealing with red tape
- SSDI for disabled workers and childhood disability beneficiaries
- Benefits for family members
- Transitioning from SSDI to retirement benefits
- SSI resource limits and allowed assets
- SSDI and SSI, side-by-side
- Work incentives and subsidies, including PASS, IRWEs, and TWPs
- SGA and reporting requirements
- Applying for Medicaid and Medicare
- Communicating with the Social Security Administration
- Dealing with overpayments
As a former full-time human services coordinator, author Emily Pogue helped thousands of clients navigate the Social Security system. In this guide, she uses plain English explanations and easy-to-grasp examples to help readers understand how the system works and how to maximize Social Security retirement benefits.
The award-winning IN 30 MINUTES series has helped readers all over the world grasp complex topics, from health to social media.
Product Details
| ISBN-13: | 9781641880350 |
|---|---|
| Publisher: | In 30 Minutes Guides |
| Publication date: | 09/17/2019 |
| Pages: | 102 |
| Product dimensions: | 6.00(w) x 9.00(h) x 0.21(d) |
About the Author
Read an Excerpt
CHAPTER 1
Social Security basics
The United States hasn't always had a system of economic insurance for the elderly. During colonial times, the British system of poorhouses — where poverty-stricken residents lived in prison-like conditions, and were usually forced to work — was established in Boston and Philadelphia, and spread to other areas before and after the American Revolution. Local governments and churches would sometimes provide food, fuel, and other forms of relief to those in need, including destitute seniors.
Over time, veterans and former government workers were sometimes able to draw pensions, but such benefits covered only a small percentage of the nation's elderly. Family support and bank savings weren't dependable. After the stock market crash of 1929, nearly one in two older Americans experienced extreme poverty, according to AARP. Many ended up in poorhouses, panhandled on the street, or even died from hunger or a lack of medical care.
A system of economic insurance for the elderly was finally structured in 1935. Initially called the Social Security Board (SSB), it was later renamed the Social Security Administration (SSA) and eventually became an independent federal agency in 1995.
Social Security proved to be a massive success. The agency now oversees a benefit system for some 70 million people who are disabled or retired, or the family members of those who are disabled, retired, or deceased. This assistance is divided into two primary programs:
• Retirement benefits
• Disability benefits (SSI and SSDI)
Within those programs are subgroups of benefits designated for qualified survivors, spouses, children, ex-spouses, and sometimes parents. In this volume, we will look at the eligibility requirements governing retirement benefits. (Disability benefits are covered in volume 2 of Social Security In 30 Minutes.)
The role of Social Security retirement benefits
As an American worker, a portion of each paycheck you have earned pays into the Social Security system. The goal: to help pay for some of your expenses when you retire.
Many people are reminded of their Social Security retirement contributions whenever they examine their pay stubs. However, not everyone understands how payroll taxes work and how they translate into future benefits.
In addition, while Social Security retirement benefits are a crucial part of Americans' retirement savings, the system was never designed to be the sole source of funds in old age. People should plan for retirement by taking advantage of the following retirement savings vehicles, if they are able to:
• Pensions and other defined benefit plans
• Tax-advantaged defined contributions programs such as 401(k) or 403(b) plans
• Individual retirement accounts (IRA)
• Annuities
• Self-employed worker retirement accounts, such as Keough plans
• Other forms of investments and savings
Unfortunately, for more than a third of Americans, Social Security retirement payments are the only source of funds available to them in retirement. For those who have access to pensions or IRAs, the account balances are often very low, making monthly Social Security payments even more important in retirement.
A recent survey shows how Americans save for retirement:
If you're interested in learning more about IRAs, 401(k) plans, and other retirement savings programs, please refer to the appendix at the back of this volume.
In walking with my clients through different seasons of their lives, it has been an eye-opener to see how people save for their future — or don't — due to different circumstances. Many are able to put money into retirement savings accounts to build their nest eggs. Others have pensions from the military, government jobs, or private employers. And then there are those who work tirelessly but only manage to live paycheck to paycheck, without saving anything. For this last group, Social Security may be their only source of income in their old age. If it is insufficient, they may have to continue working.
In the context of Social Security retirement benefits, "retirement" does not necessarily entail stopping work. Rather, it means the time that you begin to receive Social Security retirement benefits. It is possible to receive Social Security retirement benefits and continue to work, either because you need the money and/or you like working.
Achieving a sufficient level of retirement benefits is an elusive ideal, and it can be difficult to grasp the amounts of money that are involved and when to access them. In later chapters, we will learn more about when to apply for Social Security retirement benefits, and how continuing (or restarting) employment impacts Social Security retirement benefits. First, let's take a look at how the Social Security retirement system operates, including:
• Payroll taxes
• Taxes on benefits
• Social Security funding
• Social Security numbers and cards
Protip: Social Security is a progressive benefit system. This means that lower-income workers get proportionally higher retirement benefits than people who earned more during their careers. There are also rules in place that are designed to limit Social Security retirement benefits under certain scenarios. Some of these rules, including earned income exclusions, the Windfall Elimination Provision, and Government Pension Offset will be explained in Chapter 4.
How Social Security benefits are funded
The funding for Social Security is primarily taken from American workers' earnings. If you have a job, you will notice that 6.2% of your paycheck is withheld for Social Security tax. It may appear as a line item for FICA, which stands for the Federal Insurance Contributions Act. Your employer matches that amount, tossing in an additional 6.2%, for a total of 12.4%. If you are self-employed, the 12.4% is paid entirely by you, as you are both the employee and employer.
The following sample shows how the amounts are typically broken out on a worker's pay stub. Gross earnings for this pay period totaled $774, with 6.2% ($47.99) deducted as the FICA line item. The other deductions are for federal and state tax withholding, Medicare, a state disability insurance program, and a 401(k) retirement plan:
[TABLE OMITTED]
Any money collected for Social Security is put into trust funds that are overseen by the Department of the Treasury:
• Old Age and Survivors Insurance Trust Fund (OASI)
• Disability Insurance (DI) Trust Fund
The two trust funds are collectively referred to as OASDI. The funds are huge, collecting and paying out approximately $1 trillion every year. Payroll taxes form the bulk of the revenue, while benefit payments account for about 95% of expenditures.
The funds pay for benefits as well as administrative costs. Unused assets are invested in securities backed by the US government. Trustees who oversee these funds report to Congress each year.
An additional element to payroll taxes relates to Medicare. It's a 1.45% assessment for both workers and employers to cover hospital insurance (HI). Sometimes HI will be combined with Social Security retirement contributions on your pay stub, but for some employees, it will be listed as a separate item. Social Security and Medicare in Chapter 5 has more information about Medicare coverage for retirees.
Taxes on Social Security benefits
Besides earnings withholdings, sources of Social Security funding include interest from Social Security bonds, taxes on paid-out Social Security benefits, and in rare instances, money from the general fund.
Wait a minute. Taxes on benefits? This question comes up a lot, and it's true. Every recipient may be required to pay federal taxes on benefits. Residents of about a dozen states may have to pay state taxes, too. As of this writing, U.S. states that tax Social Security benefits in some way include:
Colorado Montana Rhode Island Connecticut Nebraska Utah Kansas New Mexico Vermont Minnesota North Dakota West Virginia Missouri
Check with your financial advisor or the official website for your state's tax collection agency to learn more about applicable rates. A list of links to state tax agencies is located at the Federation of Tax Administrators website (www.taxadmin.org/state-tax-agencies).
Base amounts
If Social Security is the only income you have, it is not usually taxable at the federal level. If you have other income besides your benefit, you may have to pay federal taxes on 50% to 85% of your annual benefit.
The IRS has established base amounts, a series of combined income thresholds for determining whether you have enough income from Social Security and other sources to trigger tax requirements.
Base amounts are not the same as the "net income" line on your tax return. Rather, base amounts are a combination of a portion of your Social Security benefit and other income, such as wages, annuity distributions, self-employment earnings, pensions, or other money coming into your household that says what tax requirements are going to be triggered. Think of base amounts as a series of plateaus that you reach. As you have more money, you will gradually reach another plateau with new tax requirements.
The formula is simple:
½ of annual Social Security benefits + other income = combined income
Compare your combined income to the following base amount thresholds to determine what portion of your Social Security benefits will be taxable at the federal level:
Filing status Benefits are not 50% of benefits are 85% of benefits are Taxable taxable taxable
Single Below $25,000 $25,000–$34,000 Above $34,000 Married filing Below $32,000 $32,000–$44,000 Above $44,000 jointly
If you are married filing separately and you lived together at any point during the year, all of your Social Security benefits will be taxable. If you are married filing separately and did not live together during the year, use the base amounts for single filers.
Note that these thresholds will change over time. Check with the IRS or your tax preparer to verify the latest base amounts.
Two tax examples
Jessica is unmarried. She receives a Social Security retirement benefit of $1,000 per month, or $12,000 per year. She works part time, and her annual income from her job is $14,000.
Half of Jessica's annual Social Security retirement benefit is $6,000. Using the formula listed above, we can calculate her combined income and compare it to the base amount from the IRS:
50% of annual Social Security benefit $6,000
+ other annual income $14,000
= combined income $20,000
Her combined income, $20,000, is less than the base amount of $25,000 for single people shown in the chart above. Therefore, Jessica will not have to pay taxes on her Social Security benefits.
Let's take a look at a married couple, Pat and Jason, retirees who are filing jointly. Pat has a Social Security retirement benefit of $2,000 per month. Jason receives a Social Security disability benefit of $1,000 per month. Pat is also drawing $28,000 from an individual retirement account (IRA) this year.
Pat's annual Social Security retirement benefit amount is $24,000, while Jason's disability benefit is $12,000. Added together, that equals $36,000, half of which is $18,000. Here's what happens when the amounts are plugged into the formula:
50% of annual Social Security benefit $18,000
+ other annual income $28,000
= combined income $46,000
Combine 50% of their combined Social Security income and add the $28,000 in IRA distributions, which equals $46,000. Based on the table shown earlier, their combined income is above the higher threshold for married couples filing jointly, meaning 85% of their combined Social Security income will be subject to federal tax.
Let's look at the two scenarios side by side:
Name: Jessica Pat and Jason
Annual benefit amount $12,000 $24,000 + $12,000 = $36,000
Subtract ½ of annual benefit amount -$6,000 -$18,000
Subtotal $6,000 $18,000
Add income +$14,000 +$28,000
Combined income total $20,000 $46,000
Filing status Single Married filing jointly Base amount threshold $25,000 $32,000 (50%) or $44,000 (85%)
Tax required? No Yes
If you need help figuring out the potential tax liability, the IRS has a Social Security worksheet on its website (IRS.gov) that might help. You will need to enter income, Social Security benefit amounts, tax filing status, tax credits, and other typical tax questions. The website will then do the computations for you.
Long-term funding challenges for Social Security
Social Security has major long-term funding challenges. Fundamental issues include longer life spans and lower birthrates, which means fewer young people are paying into the system. According to a report on the SSA.gov website, the current ratio of 2.8 working people paying Social Security taxes for each person receiving Social Security benefits will decline to 2.2 to 1 in 2033.
Remember, the majority of Social Security benefits are funded through payroll taxes of people who have not retired yet. If there are fewer people paying into the system every year, funds to support retirement and disability benefits will have to come from another source.
However, rumors that Social Security is "going bankrupt" or will not be able to pay benefits in the future are exaggerated. While payroll taxes and noninterest income have not been able to pay for all program costs since 2010, the SSA projects redemption of trust fund assets will cover full payment of scheduled benefits through the year 2033.
According to AARP, even if Congress does nothing to shore up the system and OASDI runs out of cash reserves in the 2030s, Social Security will still be able to pay 79% of benefits until the year 2090.
Congress will likely act long before then to adjust taxation levels and/or increase the retirement age. This is what happened in the early 1980s, the last time reserves were nearly depleted.
Should people be concerned about the future of Social Security? Absolutely. Retirement and disability benefits are key sources of income for millions of people, and they will continue to play a role in the lives of our children and grandchildren. But they are not in imminent danger of running out.
In terms of what you as a citizen can do (beyond making sure you and your family members get the benefits that are due in the near term), is to demand that your representatives in Congress and other government leaders fix the long-term funding situation. This needs to happen within the next 10 years, before citizens' Social Security benefits are impacted.
Social Security numbers and cards
Back in 1936, a year after the Social Security Act was signed into law, the government created Social Security numbers to track American workers' earnings. This allowed them to determine Social Security benefits for each person in the system.
The primary purpose of the nine-digit number remains the same. However, because each person in the system has a unique number and the numbers are never reused, other government agencies, insurance firms, banks, credit services, universities, and private companies also use Social Security numbers to identify and track people.
Some 500 million Social Security numbers have been assigned by the SSA, with room for another 500 million numbers. The first three digits are area numbers, generally based on the state of issue (until 1972) and on the zip code of the mailing address used in the application for a Social Security card (after 1972). This has led to some patterns and quirky exceptions:
• People in New England and New York often have numbers starting with a zero, as area numbers were assigned from lowest to highest beginning in the northeast and moving west.
• Sequences 577, 578, and 579, which are assigned to residents of Washington, D.C., are exceptions to the above standard.
• Sequences 580 — 584 and 596 — 599 are issued to residents of Puerto Rico and the U.S. Virgin Islands.
(Continues…)
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Table of Contents
Introduction
CHAPTER 1 - Social Security fundamentals How Social Security benefits are funded Taxes on Social Security benefits Base amounts Two tax examples Long-term funding challenges for Social Security
CHAPTER 2 - Disability benefits overview Title II benefits (SSDI) vs. Title XVI benefits (SSI) The government’s definition of “disability” Disability benefits and full retirement age (FRA) Best practices for dealing with red tape Documentation you will need Social Security and cost-of-living adjustments
CHAPTER 3 - Social Security Disability Insurance (SSDI). Starting SSDI doesn’t mean giving up your job The three types of SSDI benefits Disabled workers Childhood disability beneficiaries SSDI benefits for widows and widowers Receiving and maintaining SSDI payments Transitioning from SSDI to retirement benefits
CHAPTER 4 - Supplemental Security Income (SSI) SSI resource limits and allowed assets SSI income exclusions Applying for SSI benefits and maintaining eligibility SSDI and SSI, side by side SSI benefits for children
CHAPTER 5 - Getting back to work. SSDI work incentives Trial work period (TWP) overview Extended period of eligibility (EPE) overview TWP/EPE example SGA and reporting requirements More programs to help transitioning back to work Ticket to Work Plan for Achieving Self-Support (PASS) Impairment-related work expense (IRWE) program Work subsidies and special conditions Expedited reinstatement
CHAPTER 6 - How to interact with Social Security. SSA.gov and My Social Security Mail, phone, and in-person visits How to apply for Social Security disability benefits Applying for Medicaid and Medicare Medicaid Medicare Reporting changes Dealing with overpayments The Social Security appeals process Social Security scams
Conclusion
Glossary
Index