AssetBuilder - Registered Investment Advisor :: Simple Investing Smart Future

In an article in the Daily Breeze , you confirmed to a a J.C. from Corpus Christi that he would receive a credit for all taxes he had paid  going back to 1999. Is a credit different than a refund? When I talked the IRS they indicated you could not file amended returns going back for more than 3 Years plus the current year that is due April,15th of this year. If I do this, I would go back to the year 2003. Any help you can provide would be appreciated.

-Jerry

You're right. The distinction between a tax credit and amending returns is a big one. As I understand it, when you reapply for Social Security benefits you return the benefit money you received but you can also get a tax credit on that years tax return for any income taxes you paid over the period DUE TO THE TAXATION OF THE BENEFITS YOU ARE RETURNING. For some, that will lower the cost of the transaction significantly. Here is a link, provided by a reader, to the appropriate IRS document.

http://www.irs.gov/publications/p915/ar02.html#d0e3948

Currently, about 20 percent of all Social Security benefit recipients are paying some amount of tax on their benefits. As I've pointed out in many columns, more and more retirees will experience this tax as time goes on. I'm amazed that it has received so little attention compared to the hated AMT.

Scott

As I read the link, you receive a deduction not a credit for the income taxes paid. I heard this confirmed on the Ray Lucia Show. Certainly this is a big financial difference as a deduction, would only be that 2% above your AGI. Many retired people cannot itemize and thus would not get any refund of their taxes paid.

So how does this strategy look if you pay taxes on the SS benefits and cannot recover them?

Whether it is a deduction or a credit depends on how large the adjustment is. If the adjustment is $3,000 or less you have to take it as a misc. deduction which must be over 2 percent of your adjusted gross income. As you suggest, this won't help much.

However, if the adjustment is more than $3,000 you get to figure out how much additional tax you paid due to the taxation of SS benefits in any year back to 1983, find the sum of that additional tax you paid, and then subtract it directly from your total tax bill for the current year. I read that as a direct tax credit for prior taxes paid on SS benefits.

As a practical matter, no one will be going back to 1983. Since your SS benefits stop growing at age 70, no one older than 71 or so is likely to reapply and they'd only be able to go back 8 years to age 62 if they started taking benefits at 62. So a 70 year old who reapplied in 2008 would only have to go back to the year 2000 while someone who started at 65 would only have to go back to 2003.

Scott

I appreciate the clarification and as I reread the link I think you are right in the way the deduction is figured. I for one intend to start taking Social Securityin two years at age 62 and reapplying at 70. What a deal if it is still around at that time.

I checked my Texas TRS retirement protocol. You can also start young, pay back and reapply, but there is a 6% iannual nterest charge on the benefits received.