Key Takeaways
- A pregnant mother told The Ramsey Show she makes about $8,000 a month from $3,000 of Social Security survivor benefits and her cleaning business.
- If the other $5,000 a month is all profit, she files as single or head of household, and the whole $3,000 is her own benefit, up to $30,600 of her benefits could be taxable.
- Since she’s under 67, the earnings test would hold back $17,760 of her own checks this year on $60,000 of profit, and $17,220 next year.
- That suggests much of the $3,000 is her children’s, and their benefits count as their income, so her taxable benefits could be far below $30,600.
If you collect Social Security survivor benefits and keep working, up to 85% of those benefits can be taxable, the same as anyone else’s. But before you plan around that, it’s worth knowing whose benefits they really are.
She makes about $8,000 a month
A caller on The Ramsey Show this week put real numbers on it. She’s pregnant and thinking about moving out of state for her family’s safety, and she said she was “making about $8,000 a month between Social Security and my business,” a cleaning business. Asked about the Social Security, she said: “it’s survivor benefits, so it’s $3,000 a month.” So let’s say the other $5,000 a month is all business profit, or $60,000 a year, that she files as single or head of household, and that the whole $3,000 is her own benefit.
On those numbers, she’s far past the top line
The IRS adds half of your benefits to the rest of your income. On a single or head-of-household return, up to 50% of your benefits become taxable once that total passes $25,000, and up to 85% once it passes $34,000. Neither line rises with inflation. Half of her $36,000 a year in benefits is $18,000, and with $60,000 of profit she’d be at $78,000, or $44,000 past the top line. That’s far enough over that she’d hit the cap: 85% of her $36,000, or $30,600 of benefits added to her taxable income on top of the profit itself.
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But the earnings test would hold back her own checks
Since she’s pregnant and caring for her children, she’s under 67, Social Security’s full retirement age. Her own check is probably a mother’s benefit, which a widow or widower of any age can get while caring for the late spouse’s child under 16. Anyone under full retirement age who works faces the earnings test, which holds back $1 of benefits for every $2 earned over a yearly limit: $24,480 this year and $25,560 next year. On $60,000 of profit, that would hold back $17,760 of her own checks this year and $17,220 next year. Social Security does this by withholding whole checks starting in January until the excess is covered.
So if she’s really collecting $3,000 every month, something has to give. Either her profit is well below $60,000, or much of the $3,000 is her children’s.
Her children’s checks are their income
I’d bet on the second, and that’s good news for her tax return. When a parent gets a child’s benefits in her own name, only her own part counts toward whether her benefits are taxable. Half of the child’s part goes onto the child’s own income instead. Her earnings also come out of her own check alone. Social Security charges a family member’s excess earnings against that person’s own benefit, so the children’s checks keep coming. At $60,000 of profit, her own check would be held back all year if it were $1,480 a month or less ($17,760 spread over 12 months), so she’d receive none of her own benefit to be taxed. And even if one child got the whole $36,000, half of it is $18,000, under the $25,000 line, so none of it would be taxable unless the child had other income.
Her mother’s benefit has an end date
Either way, the $3,000 won’t stay the same forever. A mother’s benefit stops when the youngest child she cares for on the late worker’s record turns 16. A child’s own benefit ends at 18, or at 19 if the child is still a full-time high school student. Frankly, I don’t expect her to get anywhere near $30,600 of taxable benefits. And if she does move, she said it would mean starting over, so a smaller profit for a while would mean less of her own check held back next year.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
