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- How Much Can You Earn While Drawing Social Security Benefits?
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Pensions provide income for retired workers administered by employers through fixed payments or lump sums. Workers who meet the Social Security Administration's qualifications can collect disability, retirement or survivors' benefits, as well. If you are eligible for both incomes, your pension may affect your Social Security benefits.
Windfall Elimination Provision
Your Social Security benefits are reduced if your pension is from a job where you didn’t pay Social Security taxes. Social Security benefits were intended to be 25 percent of pre-retirement earnings for high-wage workers, and as high as 55 percent for low-wage workers. Congress passed the Windfall Elimination Provision to take away the advantage of workers who didn’t pay Social Security taxes getting higher Social Security benefits than those who did pay. This happened because employees who didn't pay Social Security taxes received benefits entitled to low-wage earners, even if they had earned high wages.
Government Pension Offset
If you’re receiving Social Security spousal or widow/widower benefits, your payments may be reduced by your government pension under the Government Pension Offset policy. If your pension is from a government position where you didn’t pay Social Security taxes, your Social Security benefit is reduced by two-thirds of your pension. For instance, if you receive a monthly $1200 pension, your Social Security payments are reduced by $800 per month.
Taxation and Pension
If your pension is considered taxable income and its substantial, your Social Security benefits become taxable if your combined income exceeds income guidelines. As of 2012, if you’re filing taxes as an individual, 50 percent of your Social Security benefits are taxed at normal income tax rates if your total income tops $25,000 per year. If your total income surpasses $32,000 annually, up to 85 percent of your Social Security benefits are taxed. If you’re married and your household income tops $32,000, up to 50 percent of your Social Security benefits are taxed and up to 85 percent if your household income is over $44,000.
The Windfall Elimination Provision doesn’t always apply. For example, if you have over 30 years of earnings under Social Security, the government hired you after December 31, 1983, or the only work you did was not covered by Social Security, but ended before 1957. The Government Pension Offset doesn’t apply to your benefits if your pension isn’t based on earnings as a government employee.
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