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I had a recent conversation with a retiree that their social security benefits were cut in half because their income was too high. They mentioned this was new, but I can't find any new laws about this. Is this a recent change, or was this always the case and the person's income probably increased?

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    There was a law introduced last year to reduce benefits to affluent retirees, but there has been no further action yet. This question is based on a false premise. – Nathan L Feb 14 '17 at 20:31
  • Please check my answer, I know someone who is dealing with this right now. – Pete B. Feb 14 '17 at 20:37
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    @PeteB. Taxing the benefits is not the same as cutting the benefits in half as the OP asked about. You can read about that law here: congress.gov/bill/114th-congress/house-bill/6489 – Nathan L Feb 14 '17 at 20:38
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This page has the information you are looking for.

Despite what people like to hear, social security is a entitlement program. It was sold to many as a retirement plan, but much like income tax certain incomes receive a refund larger than the amount they paid in taxes. Other income have reduced deductions and pay a larger percentage on those reduced deductions.

Issues, such as you raise, only make sense if you see it as a entitlement program and not a pension plan. The SSA is really pushing people to not work and receive benefits. Its punitive if they work, receive benefits, and are not at full retirement age.

Lets assume your friend is not at full retirement age, and without working receives 1000/month in SS benefits. If he earns $28,920 for the year he will indeed have his benefit cut in half. Obviously that is not very much money.

In the year that he reaches full retirement age he can earn ~48K before a reduction, and then it is at a different rate. Assuming he reached that age in December, he could earn close to 50K before being reduced by half.

Once you are at full retirement age, then you are taxed on your SS benefit rather than having it reduced, which still kind of stinks.

The key here is don't take social security if you are still earning an income, unless you have reached full retirement age.

  • Nice answer. Always tough to guess what was meant by bad advice told to us third hand, but I think you got it. – JoeTaxpayer Feb 14 '17 at 22:40
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    Should also note that while the income earned may reduce benefits this year, it will increase them in future years. – jamesqf Feb 15 '17 at 3:37
  • While I agree with you, in principle @jamesqf it does not make a material difference in many recipient's benefit. If they have not worked a full 40 quarters, yes it will help. If they are making more money after receiving benefits, then it will help some. In other cases, it will not make any material difference. – Pete B. Feb 15 '17 at 12:12
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If you have other income besides Social Security, the benefits can be taxable.

If the person is in a high enough tax bracket, and in a state that also has an income tax, that can be easily be 30% of the benefits effectively being cut.

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