Social Security & Working After FedEx?

When it comes to retiring from your FedEx company, 65 is the new 55, which means you could be able to continue working while filing for Social Security benefits. Your compensation may have an impact on your monthly income, your annual tax liability, and your Medicare premiums if you retire from FedEx and take up a part-time employment or some consultancy work.

Reasons abound to keep working, but for most, it simply comes down to math and to emotions.

With a longer lifespan on average, many of our clients from FedEx are concerned they won't have enough savings to last their lifetime, and understandably so.

If you plan to keep working after retiring from your FedEx while collecting Social Security, here is what you need to keep in mind:

Additionally, until you reach the full retirement age (FRA), there will be an earnings test: Your benefits will be lowered by $1 for every $2 of earned income beyond the cap in 2022 if your total income exceeded $19,560.

The earnings test maximum is $51,960 in 2022, the year you reach full retirement age (FRA). Your benefits will be lowered by $1 for every $3 of earned income that exceeds the limit.

These diminished advantages don't simply "go away." Your monthly Social Security check will be enhanced once you reach full retirement age (FRA) to make up for payments withheld earlier owing to excess earnings if your benefits have been lowered as a result of earnings.

Note: Investment income, pension payments, government retirement income, military pension payments, and other comparable forms of "unearned" income are not included in earned income.

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'Earned  Income' includes wages, net earnings from self-employment, bonuses, vacation pay, and commissions earned—because they're all based upon employment.  Once you reach your full retirement age(FRA), there is no earnings test and no benefit reductions based on earned income.

Tax Impacts

Federal income taxes are applied to Social Security benefits above a specific threshold of "combined income," independent of the earnings test. Your adjusted gross income (AGI), two nontaxable interests, and half of your Social Security benefits typically make up your combined income.

• For individual filers with combined income below $25,000, none of your Social Security is taxed. For joint filers with combined income below $32,000, none of your Social Security is taxed. (See:  Income Taxes And Your Social Security Benefit   for more information.)
• For individual filers with combined income of $25,000 to $34,000, 50% of your Social Security benefit may be subject to federal income taxes. If your combined income exceeds $34,000, then up to 85% of your Social Security benefits could be taxed.
• For joint filers with combined incomes of $32,000 to $44,000, 50% of your Social Security benefit may be subject to federal income taxes. If your combined income exceeds $44,000, then up to 85% of your Social Security benefits could be taxed.

Regardless of your income level, no more than 85% of your Social Security benefits will ever be subject to federal taxation.

Additionally, 11 states also tax your Social Security benefits. The rules and exemptions vary widely across this group so it is wise to research the rules for your state or consult with a tax professional if you're one of our FedEx clients that this applies. ³

State Social Security Tax

The eleven states below impose a tax on Social Security benefits to varying degrees.

Colorado 

The pension-subtraction scheme in Colorado exempts certain Social Security payments as well as up to $24,000 in pension and annuity income. Beginning at age 55, the exemption is determined by your age.

Connecticut 

Social Security benefits may be wholly or partially exempt in Connecticut depending on the filing status and income of the individual.

Kansas 

Depending on the taxpayer's income, Kansas exempts Social Security benefits from state tax. Regardless of your filing status, if your federal adjusted gross income (AGI) is $75,000 or less, your Social Security benefits are free from Kansas income tax.

Minnesota 

Minnesota partially taxes Social Security benefits. The state allows a subtraction from benefits ranging from $2,725 for married taxpayers who file separately, to $4,260 for single taxpayers, to $5,450 for married taxpayers who file jointly. The rule is subject to phaseouts starting at incomes of $82,770 for joint married filers, $41,385  for married taxpayers filing separately, and $64,670 for heads of household and single filers. The subtraction is less for these incomes and eventually phases out entirely as you earn more. 

Missouri 

Missouri exempts Social Security benefits from state tax, provided that the individual is age 62 or older and has  adjusted gross income  of less than $100,000 if married and filing jointly, or $85,000 for all other filing statuses. Those who earn more than that might qualify for the exemption if they're disabled. 

Montana 

Montana asks residents to use the Montana Individual Income Tax Return to determine the portion of Social Security benefits that's taxable by the state (page 5 and page 6). That might be different from the federal amount. 

Nebraska 

Starting in 2022, Nebraska began phasing out taxation of social security benefits. The state allows a deduction for Social Security income that's included in your federal adjusted gross income if your federal Adjusted Gross Income(AGI) is less than or equal to $61,760 for married couples filing jointly, or $45,790 for all other filers. 

New Mexico

Starting in 2022, the state of New Mexico changed rules that would exempt most seniors from paying tax on social security benefits. This exemption is available to taxpayers with the following income thresholds — $100,000 for single filers, $150,000 for married filers filing jointly, and $75,000 for married filers filing separately. 

Rhode Island 

For people who meet the IRS definition of full retirement age, Rhode Island offers an exemption from Social Security taxes. The federal Adjusted Gross Income (AGI) for eligible taxpayers must be $88,950 for single filers or $111,200 for married couples filing jointly.

Utah 

In late 2019, Utah adopted a sweeping tax bill that includes a  tax credit  for Social Security benefits that are included in a taxpayer's federal adjusted gross income. The Adjusted Gross Income(AGI) thresholds are $25,000 for married filing separately, $50,000 for married filing jointly, and $30,000 for single filers. 

Vermont 

Vermont used to calculate the taxable part of Social Security payments in accordance with federal law, but it later implemented exemptions for taxpayers with earnings under $25,000 for single filers and $32,000 for other statuses. Higher earners receive benefits that are taxed at progressively higher rates; there is no exemption for adjusted gross income (AGI) of more than $55,000 for single filers or more than $70,000 for joint filers.

Medicare & Social Security

You will be responsible for paying Social Security and Medicare taxes on any earnings you make in retirement, in addition to federal and possibly state income taxes. These withholdings have no upper age limit and are not affected by a person's eligibility for Social Security payments.

These earnings may also be taken into account when determining your benefits. Every year, the Social Security Administration reviews your earnings history and, if necessary, increases your benefit in accordance with these higher earnings.

Could your benefits be harmed if your retirement income is significantly lower than it was before?

No. This is because the benefit payment is still based on your 35 highest years of earnings. If this were to replace any of the lower 35 years, at worst there would be no effect, and at best it may be beneficial.

Note: If you make more than a certain amount, you may find yourself in a higher tax bracket as well as a higher Medicare premium level after you turn 65. For the majority of participants, Medicare sets the cost (premium) for Part B at a fixed rate ($170.10 per month for 2022); however, for individuals with an annual income over $91,000 and married couples with an annual income over $182,000. These members with higher incomes may have monthly expenses ranging from $238.10 to $578.30 in 2022.

You can be required to pay IRMAA (Income-Related Monthly Adjusted Amount) in addition to your Part B or Part D premium if your income exceeds a specific threshold. To find out more about whether you are impacted, we advise you to speak with a tax expert.

Can I Contribute to a Retirement Account?

Maintaining earned income beyond Social Security benefits allows you to continue making contributions to retirement savings accounts, such as 401(k)s, Roth IRAs, regular IRAs, and health savings accounts (HSAs).

Note:  If you are over 72, you will have to take the  required minimum distribution (RMD)  from your traditional IRA, except for during the 2020 pause because of COVID-19.

Your traditional 401(k), or similar FedEx retirement plan, is a different story. In general, you can continue stashing away money in your current FedEx-provided plan as long as you're still working, even part-time, and you can delay taking your RMD until after you retire.

These extra savings can be beneficial, particularly if you're falling a little short of your savings targets. Even when your working career is coming to an end, the combination of the additional savings, tax-deferred growth potential, and the flexibility to postpone using your resources can be quite beneficial.