Dear Rusty: Upon being let go in 2009 at age 65 from my full time job of 30 years, I immediately applied for Social Security for my wife and I to live on while seeking employment. Not finding anything full time, I ended up working part time for the past 9 years driving a school bus for an hourly wage. Even though my wife and I are collecting Social Security, my wages are still being taxed for it. While I don’t feel this is fair, the real rub (to me) is the fact that my Social Security payroll deductions for the past nine years do not seem to be resulting in an increase in the amount of Social Security we receive. Meanwhile, a friend, who is our age and a business owner, mentioned the amount he is taxed for SS as a sole proprietor is somehow being returned to him from time to time. Therefore, could you please explain what’s happening here and whether we are due some kind of adjustment? Signed: Working Still at 74Dear Still Working: I cannot comment on your friend’s assertion that as a sole proprietor business owner his self-employment SS tax is somehow being “returned to him from time to time.” I can, however, tell you that the rules for business owners are the same as for those who do not own a business, except that a business owner pays both the employee and employer portion of Social Security employment taxes.Essentially, the only way paying into Social Security now (via payroll taxes or self-employment taxes) will increase your SS benefit amount is if your income in any recent year is more than your earnings in any of the 35 highest earning years over your lifetime used to compute your SS benefit. When your Social Security benefit was originally computed, all years in your lifetime earnings history through age 59 were adjusted for inflation and the highest earning 35 years were selected to develop your “average indexed monthly earnings” (AIME). A formula was applied to your AIME to determine your “Primary Insurance Amount” or “PIA,” which is the amount you get if you claim benefits to start in the month you reach your full retirement age (FRA). If you claimed at age 65, your SS benefit was slightly reduced from your PIA because you claimed before your FRA.Although you have been and are still working part ...
