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Social Security Benefits


Christian
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A client age 61 is considering applying for his Social security benefits at age 62. He is currently three years in arrears on filing his federal and Virginia tax returns having yet to file for 2019, 2020, and 2021. I told him he needed to check with the Social Security Administration as my thought would be they likely would not compute his benefit lacking any unfiled tax returns due for prior years. Does anyone know if this is correct ? He was of the opinion they would compute his benefit with the available filed returns and then adjust his benefit after he caught the arrears up.

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I don't think he'll get SS credit for returns overdue by 3 (?) years or some amount of time, so if he expects the missing years to help his SS calculation it would be better to file them sooner rather than later.

Why do our clients think we are SS experts?!

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45 minutes ago, Lion EA said:

Why do our clients think we are SS experts?!

Over the last several decades, people have changed.  Just as we used to go to a butcher for meat a produce stand for produce, etc., we now seem to want one stop shopping.  Like some of my customers, I suspect yours will ask anything, just in case you will answer it for free.  This type of thing is one of the reason I had to drop phone support several years back.

Literally, today, I helped someone discover who was using different software, that they were making a typing error.  The initial contact was a complaint that the "IRS" was coming up with a different figure than Medlin (it was neither the IRS or Medlin).  I get asked for things like if I can make data from X software work with mine, and often, basic computer operating questions.  It is a real art to deflect, and keep things within the scope of what they have paid for.

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I have his 2019 return prepared and he is coming to collect and file. He never owes and in point of fact has paid no Social Security tax for as long as I have been doing his returns. The Earned Income and Child Credit has caused him to owe nada so any benefit he will get will largely be one he has largely never funded. As Jackie Gleason famously said "How sweet it is" ! 

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On 1/20/2023 at 9:38 PM, Christian said:

I have his 2019 return prepared and he is coming to collect and file. He never owes and in point of fact has paid no Social Security tax for as long as I have been doing his returns. The Earned Income and Child Credit has caused him to owe nada so any benefit he will get will largely be one he has largely never funded. As Jackie Gleason famously said "How sweet it is" ! 

How can he have received Earned Income Tax credit and not paid any social tax?  Earned income required for EITC, and SS tax is always paid if there is earned income.  Does he file MFJ?

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Even at 12,000.00 there had to be some SS deducted, paid somewhere. if he was self-employed, It seems like the EITC and CTC would have eliminated any SE tax. With that said, the SE tax generated is the SS portion still credited to his SS account? Never thought about this before.

 

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1 hour ago, Christian said:

His Earned Income came in at some $12,000 or so dollars. His status is HOH which eliminated any income tax. His EIC and Refundable Child Credit was greater than his SE tax.

Your previous post was misleading because your client paid SE Tax which was offset by EIC.

Therefore timely filing is still required to update his SS Earnings Record.

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6 hours ago, Terry D EA said:

Even at 12,000.00 there had to be some SS deducted, paid somewhere. if he was self-employed, It seems like the EITC and CTC would have eliminated any SE tax. With that said, the SE tax generated is the SS portion still credited to his SS account? Never thought about this before.

 

I believe you are correct.  If he was employed the SS tax would be accessed and credited to his SS account. He "paid" it by reducing his refund.  A bigger question may be how is he providing for himself and child (or children) on $12,000 a year (that's about 4 bags of groceries these days 😊) .  I would definitely ask some pointed questions and document the answers for due diligence.   

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Years ago SSA sent people annual statements showing their projected benefits calculated on their past contributions and projecting their current income to stay the same for the rest of their working years.  It's amazing how many business clients found religion and began showing more realistic profits.

Like others, I would ask a lot of questions of this guy who supposedly supports kids on $12k a year in VA.  He certainly doesn't need HOH status as single would yield the same result and prompt less suspicion.  He can't supply more than half the cost of the household on that income.  I'd have a heart-to-heart with the guy and disengage.

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I hate to be the skinflint in this discussion. Yes his Social Security tax was paid. By folks like you and me my friends and when he draws those soooooo sweet benefits his out of pocket contributions will for the most part been 0. There is not the shadow of doubt in my mind judging by his lifestyle he has unreported cash income from his business. He and wife are separarted for years but have a now 13 year old son who likely lives with Mama who has her mother living with her and so can claim HOH without the son. Every year she provides a signed nnotorized document attesting that son lives at dad's home even though    I have repeatedly requested a better form of proof of residence. 

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I accidentally sent this off before finishing it and editing. As noted she provides a notarized statement attesting to the son living with him. I this go around again reviewed this with him and he advised " I ain't worried my wife will swear to him living with me". I note on his return on line 5 of Form 8867 Notarized affidavit from wife and the Service has yet to raise any questions. And now he is off living with his latest femme fatal on a local lake. Some guys have all the fun.

 

 

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Keeping up with client's social lives is not something I get into. A relative of his came in and sorta updated me I guess one might say. I have had extensive conversations with his wife as well over time. I have pretty much decided since I am gradually leaving the business this 2019 return will be my final work for him. Essentially I am keeping the ones I want and doing what most of us do at this point in my practice and make tax time much easier. Your input is as always is appreciated. 

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It's not as worrisome as it may seem. He has a seasonal lawn service business. He totals his Form 1099s he receives from the business customers he serves. He adds a figure in on any other income. His expenses are basically receipts for gas, oil, materials used, and depreciation on his equipment. His problem if one should arise will be claiming his son which I have repeatedly advised him of. The Service does not specifically rule out a notarized affidavit but whether it would satisfy them is open to question. He's one of our southern good ole boys whom I will miss but age curtails everything.🙁

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Since you did not say he gives all deposits from the December statement from his separate business account, and all cash/checks/cards go through said separate business account... (you likely know where I am going).

I do not miss shoe box accounting, writing checks, or using cash (for business).  Long live charge cards with rewards and their detailed monthly statements!

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