Question

In 2021, the annual Social Security earnings limit for those reaching full retirement in 2022 or later is $19,960. Suppose, at age 62, Joan wants to claim Social Security benefits while continuing to work part-time, earning $21,460 per year. Under the earnings test, how much will be taken from her Social Security benefits each year (to be repaid with interest after she reaches the full retirement age)?

A.$750
B.$950
C.$1,000
D.$2,000

Answer 1

Joan is over the earnings limit by $1,500. For every $2 over the limit, $1 is deducted from Social Security benefits. Thus, $750 will be withheld from her annual Social Security benefits.

Option 'a' is the correct.

Step-by-step explanation:

In 2021, the Social Security Administration set an annual earnings limit of $19,960 for those reaching full retirement age in 2022 or later. Joan, who is 62 years old, wants to claim Social Security benefits while working part-time and earning $21,460 per year. To calculate how much will be taken from her Social Security benefits under the earnings test, we can follow these steps:

1. Subtract the earnings limit from Joan's annual income: $21,460 - $19,960 = $1,500 over the limit.
2. According to the Social Security rules, benefits are reduced by $1 for every $2 earned over the limit until the year of reaching full retirement age. So for Joan, $1,500 / 2 = $750.

Therefore, $750 will be taken from Joan’s Social Security benefits each year until she reaches full retirement age, at which point the deduction ceases and any reduced benefits will be recalculated for future payments.