Tax Planning: Recent Legislation Effects on Social Security

Nov 11, 2015

Miscellaneous_Time8Tax planning is always a helpful tool throughout the year, especially towards year-end. Each year accountants assist their clients with strategies to help ease the tax burden from Uncle Sam. The constant changing tax code and new legislation brought to you by our friends in Washington, sometimes is enough to make a taxpayer’s head spin. This year is no different.

On November 2, 2015, the Bipartisan Budget Act of 2015 was signed into law by President Obama. While this legislation doesn’t appear to deal with taxation issues on the surface, there are several items that were written into this law that are unrelated to the law’s actual intent.

One of these new provisions which comes into play with this new two-year deal limits a couple of planning strategies that were used by those benefiting from Social Security income.

Here’s a small summary for those that may be affected by this change:

  • Those that would benefit from the ‘file and suspend’ strategy. Listen up. This strategy has been eliminated by this Act being signed into law. “File and suspend” refers to when one of the taxpayers files for retirement benefits after reaching full retirement age and then they choose to turn around and suspend those newly requested benefits. This would in turn enable their spouse to be able to apply for spousal benefits. Effective in six months for new ‘file and suspend’ claims, if a taxpayer decides to hold off on receiving their Social Security benefits, neither the taxpayer or spouse can receive spousal benefits during that period. Since this is only affecting new claims after the effective date, those still considering doing this have six months to implement this strategy.
  • An additional strategy that has also been eliminated with this Act deals with one of the taxpayers filing for spousal benefits initially and then changing to receive their own, potentially more lucrative, benefit later by delaying their application for their retirement benefits. This strategy will still be available for those who are 62 on or before December 31, 2015.

The tax code is constantly changing and this is just one of many items that could affect how you wealth and tax plan for the future. If you have questions or require assistance is making sure you have an optimum tax strategy, give us a call at (419) 891-1040.

By: Jill Blakeman, CPA

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