Social Security Benefits

You can't stop thinking about taxes when you stop working. "Definitely look at where all of your income is coming from and the taxation on all of that," said Paula Dorion-Gray, president of Dorion-Gray Retirement Planning Inc. in suburban Chicago. "Find out what your tax implications are going to be. A lot of people are surprised at how much in taxes they end up owing." There are other things to keep in mind when you retire, such as how too much income can reduce your Social Security benefit and increase your tax burden and the best way to move your 401(k)

Each Wednesday through April 21, baltimoresun.com's tax experts will answer your questions this tax-filing season. Our experts are Jim Dupree of the Maryland office of the Internal Revenue Service in Baltimore and, this week, Nicole M. Harrell, head of her own accounting firm in Baltimore. To be included next week, please use the form at the right side of this page to submit your questions. What is the proper tax treatment for a domestic employee? I have someone close to me (the employee)

WASHINGTON - President Bush lashes his presumed Democratic challenger as a proponent of taxing Social Security benefits and raising gasoline taxes in a new television commercial, released yesterday, that underscores the increasingly acrid tone of the presidential race. The president's advertisement, expected to target 18 key states, is the fourth to attack John Kerry by name since the Bush campaign went on air three weeks ago. Its central premise, expanding on recent Republican attacks, is that Kerry's record shows him in favor of raising taxes in a variety of ways - pointing to what Kerry would do if elected president, Bush aides said.

Federal Reserve Chairman Alan Greenspan warned Congress and the Bush administration yesterday that Social Security benefits should be cut to avert serious economic problems from a ballooning budget deficit. "The dimension of the challenge is enormous," Greenspan said on Capitol Hill to members of the House Committee on the Budget. "The resolution of this situation will require difficult choices, and ... the future performance of the economy will depend on those choices." Greenspan indicated that he is in favor of making the Bush administration's sweeping tax cuts permanent despite the rising deficits because raising taxes could "pose significant risks to economic growth and the revenue base."

I receive a pension from the Post Office. When I'm old enough to qualify for Social Security, can I collect it as well? The short answer is yes, but with a big qualifier, according to pension-rights lawyer Victoria Quesada of Quesada & Moore in West Hempstead, N.Y. Your Social Security benefit will be reduced if the U.S. Postal Service didn't withhold Social Security taxes from your paycheck throughout your working life, Quesada said. That's a significant qualifier for you, because before 1984 many government employees didn't have Social Security taxes withheld, Quesada said.

ERWIN FREED confronted the dilemma last year that many face as they near retirement: when to begin drawing Social Security benefits. Do you take benefits as early as possible, age 62, but receive a smaller monthly check for life? Or, do you wait until full retirement age, which is gradually rising from 65 to 67, and get a bigger check? You can collect an even larger monthly benefit by waiting until age 70. Freed's decision to start collecting benefits at age 62 meant he receives $379 a month less than if he had waited until he was 65 1/2 . "I tossed it back and forth," said the retired aircraft mechanic, who lives in Ellicott City.

The President's Commission to Strengthen Social Security came up with a Chicken Little conclusion, but the sky isn't falling. The panel's irresponsible interim report gives a distorted view of the Social Security dilemma in an attempt to promote President Bush's individual investment accounts. On this commission, there's no room for alternative routes to put the Social Security system back in balance. What a shame. The president's preferred solution isn't even popular within his own party.

WASHINGTON -- Not all Republicans are joining the stampede for President Bush's $1.6 trillion (or whatever the true amount is) tax cut. That occasional thorn in his side, Sen. John McCain, said this over the weekend: "I think there is a belief in America that too much of this tax cut still goes to wealthiest Americans, and maybe we could do something about those that still pay a significant portion of their income in payroll taxes." Mr. McCain seemed to be referring to folks of modest income whose Social Security and Medicare payroll taxes exceed the income taxes Mr. Bush wants to cut. In that regard, Sun reader Edward Aus of Hampstead, Md., asked in a letter why, if Mr. Bush wants to return part of the federal surplus to the people paying the taxes, folks paying the Social Security payroll tax shouldn't get a break, too, instead of just income tax payers?

My employer is pushing hard for all employees to open flexible spending accounts to cover the cost of day care and medical care. I know the money I put into these accounts escapes income tax, but how does it affect my Social Security? It might reduce your future Social Security benefits, but don't panic. There's an easy way to offset the damage. Contributions to flexible spending accounts - also known as tax-saver or 125(c) plans - escape income, Social Security and Medicare taxes. That's a big advantage, because it cuts your immediate tax bill while helping you pay for child care or nonreimbursed medical expenses you incur year-round.