Millions of people depend on their Social Security benefits as they plan to retire.
But be careful of these four unexpected ways you could lose your benefits.
1. State taxes
During retirement, you may have to pay state income taxes. In some cases, your Social Security benefits are considered your income and are subject to state taxes. Read more about it here.
There are only 12 states that tax Social Security benefit:
- New Mexico
- Rhode Island
- West Virginia
The other 38 states will not tax your benefit.
2. Federal taxes
If you have other substantial income on top of your benefits, you may have to pay federal taxes on your Social Security benefit.
This includes wages, self-employment, interest, dividends, and other taxable income. Whether or not you have to pay federal taxes on the benefit will depend on your combined income.
3. Unpaid debt
The US treasury can “garnish your Social Security benefits for certain unpaid debts including back taxes, child or spousal support, or a federal student loan that’s in default.”
If you owe money to the IRS, a court order is not required to garnish your benefits. If you owe federal taxes, 15% of your Social Security benefit could be used to pay your debt.
For many, retiring means claiming Social Security benefits as their main source of income. However, you can claim your benefits and continue to work.
If you make this choice, know that your benefits may be reduced. How much depends on when you start to claim and when you reach full retirement age.
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