Does the earnings ceiling of 34440 that Social Security uses include deferred income such as money set aside for medical expenses in a cafeteria Plan or money that is put into a 401 retirement plan?

Answer 1

Well first off, the earnings ceiling for 2007 is $97,500..it hasn't been as low as you suggest for decades!

Some portions of the tax, the 1.65 medical for example, have no ceiling.

Generally, all income is considered taxable for these purposes.

However, there are some (few) exceptions depending on many things, especially who your employer is and if your included in another government plan.

You really should ask your payroll administrator about your specific programs and how they handle/qualify your contributions.

Edit: This doesn't answer this question, at least not as I understand it--a question I have myself about Social Security. I think the person answering is referring to some other limit on earnings. But the question is about whether those of us who took out SS benefits before full retirement age, and who must continue working. I took out benefits starting at 62, but I have to continue working. For earnings over the limit of $14,160 (in 2010) that I earn, I have to give back $1 in benefits for every $2 earned. In the single year I reach full retirement benefits, that limit will be $37,680. Thereafter, there is no limit on earnings.

So while I'm still earning money and collecting benefits, even though those new earnings eventually help increase my final SS calculation for monthly benefits, I have to consider how much I earn that will simply have to be given back that year! So the question is whether or not putting, for example, $2000 into an IRA of some kind will reduce this penalty on money earned over $14,160 (or $37,680 in the full retirement year).

I called SS about this, but never got an answer. However, I recently found this answer on another site:

http://www.irahelp.com/forum/viewtopic.php?f=1&t=2446&start=0

While not an official Social Security Admin answer, it does make sense:

For purposes of the earnings test, wages used are the same as those defined as social security wages. Gross wages are subject to SS tax before 401k deferrals, therefore increasing 401k deferrals will not reduce the social security wages on which the earnings test is based.

A FSA contribution or pre tax health insurance and certain other fringe benefits that are not subject to SS taxation may be used for this purpose.