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Are you trying to learn how to deliver massive tax value to your clients? Then look no further. Retirement Tax Services Podcast, Financial Professional’s Edition is a show hosted by Steven Jarvis, CPA. Steven aims to bridge the gap between tax professionals, financial advisors and their mutual clients in their quest for reducing tax expenses in retirement.
Today we are speaking with Jim Blair and Marc Kiner, the co-owners of Premier Social Security Consulting. Premier Social Security Consulting provides Social Security education and training for all professional advisors looking to better answer the questions their clients are having about Social Security, thereby increasing value to their clients. In this episode, Jim and Marc will be sharing the overlap in Social Security and taxes.
Listen in to learn how Marc will be applying for benefits as he approaches retirement and the absolute importance of filling out a W-4 V form as you apply. You will hear about how to approach Social Security and taxes, how to ensure you have enough money withheld for taxes, and how much you should assume for taxes on your benefits.
Steven and his guests share more tax-planning insights in today’s Retirement Tax Services Podcast. Feedback, unusual tax-planning stories, and suggestions for future guests can be sent to email@example.com.
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We’re not overpaying. No, we’re not overpaying. We’re not overpaying anymore. The tax code’s complicated, boring, and overrated. You don’t want that, you want a pro. One thing that you should know: this is a radio show. It’s not tax advice, don’t take it that way.
Steven Jarvis: Hello everyone. And welcome to the next episode of the Retirement Tech Services Podcast, Financial Professionals Edition. I’m your host, Steven Jarvis, CPA. And in this show, I teach financial advisors how to deliver massive value to their clients through tax planning. I’m really excited to have two guests on my show today, Marc Kiner and Jim Blair, co-owners of Premier Social Security Consulting. And part of the reason I’m excited to have them here is that they also work on helping people understand how to deliver more value. They specialize in social security, and there’s definitely some overlap there with taxes. So, Marc and Jim, welcome to the program.
Marc Kiner: Thank you, Steven. Thanks so much for the opportunity to speak with your listeners about social security and taxes. That’s good. It’s going to be a very exciting episode, I can tell.
Jim Blair: Yep. Great to be here.
Steven Jarvis: Yeah. Well, I mean, Marc, I think you might have been but just a little bit facetious about how exciting this is going to be, but we talk about taxes all the time, so my listeners are used to it.
Marc Kiner: I’m a CPA, inactive, Steven, and I understand taxes and tax season, there’s no doubt. And I understand how difficult tax seasons are and the fact that the IRS, they just don’t have a, they haven’t been allocated enough money to really successively have a tax season.
Steven Jarvis: Yep. This year is definitely going to present some interesting challenges. So, for today’s show, we want talk about kind of the overlap in social security and taxes, and Marc, you actually have a personal experience with one of the topics we want to share. So, why don’t you go ahead and talk a little bit about that?
Marc Kiner: Thanks, Stephen. Now, your listeners by looking at me may not realize that I was born in 1956, Stephen. My full retirement age is 66 in four months, which equates to June of 2022, basically five months from now. And I’m single. Nobody’s going to collect off me when I’m gone, so I don’t have a surviving spouse that’s waiting, is going to step in my shoes upon my death or in terms of social security benefits. So, I’m going to begin my benefits the month I turn full retirement age, that is June of 2022. So, I will begin, I will apply for my benefits on February 1st, 2022, that’s four months before I want them to begin. And my first benefit will be received in the third Wednesday of July of 2022. And I will have complete that tax form, W-4V. And by completing that tax form, social security will withhold taxes, federal taxes, never state but federal, for my social security benefits.
They only have about four different options in terms of percentage of benefits which can be without for taxes. I believe the lowest option is 7%. Don’t quote me, but I think it’s seven. I think their highest option is 22%. So, Steven and Jim, I’m going to fill that form out to have 22% of my benefits withheld for taxes. And I will use those tax payments as estimates for the year, because Jim and I we own an LLC, so we have to pay estimated taxes. And I will use that as estimated taxes.
Jim Blair: Now, the interesting thing will be as to whether or not social security picks up on it when they process your application. So, while you’re filling out the W-4V, I also suggest you put something in the comments section on the application itself to make the folks aware that that W-4V is out there. Because one to be filed over the social security website, their online application, and the other one will have to be mailed in. So, who knows if they’ll get matched up that way, you can let them know.
Marc Kiner: And let me say one thing, the fallback is that I will have ready a 1040-ES form in case nothing is working, I’ll just send in what I can on a 1040-ES form.
Steven Jarvis: Now, when it comes to social security and applying for social security, you Marc, you’re obviously in a very unique position compared to most filers, and that this is what you spend all of your time on. You have years of experience. Jim, you are actually with the social security administration for 35 years. So, between the two of you, a wealth of knowledge, that’s really clear in the details that you outlined as far as the timing and all of that, which those are all great things for advisors listening to be ready to walk their clients through. But I really want to highlight for a second, this form W-4V. Jim, maybe you can just shed some light on this for me with your experience from the social security administration. Although I’m guessing the answer is not very logical. Why is it that Marc has to go into the depth of his experience to know that he needs to fill out that W-4V and that the social security administration doesn’t say, “Hey, applicants, you should probably do this.”
Jim Blair: Yeah. There’s no question on the application that says, “Do you want to have taxes withheld?” And then give you that option. It would be nice if it did. And maybe even if you have to fill out the W-4V. It could then refer you to that. If you answer yes, that lets them know, and then they could be aware of it. Government agencies do not talk to each other. They’re supposed to, but they don’t. And so, social security doesn’t know what IRS is doing. IRS doesn’t know what social security’s doing. They talk a wee bit because you have to see what people’s wages are, but that’s about it. When you file the application, not a peep in that application about taxes.
Steven Jarvis: Yeah. Which is a real challenge for most of us, because for a lot of people approaching retirement, approaching full retirement age for social security, most of their life they’ve paid taxes on wages. And so, when they started their job, the HR department gives them the forms and they fill out and say, “Here’s how much I want withheld.” Or even when they start taking distributions from a 401k or an IRA, on that distribution form, it’s how much taxes would you like withheld. But when you go to apply for social security, unless someone is in your corner telling you, “Hey, you should think about withholding taxes.” You’re going to have no idea through the entire application process that that’s even an option available to you.
Jim Blair: When we talk to people, a lot of people do know that taxes are due on their social security benefits in many cases, and they ask about it, but a lot of people don’t. And you may find out the hard way when you get ready to do your taxes and you’ve been drawing social security in the past year and your accountant says, “Well, you owe this much money.” And you’re scratching your head going, “Why do I owe any money?” Well, you got your benefits and you didn’t pay any tax on it. So, it can be a real issue for folks.
Marc Kiner: Let me make a comment too. When you want to take a distribution from an IRA, the broker dealer or trustee or custodian will ask you if you want to have taxes withheld. And you have to verbally say yes or no, or sign something. Well, it’s not that way with social security. Like Jim said, they should have some place on that application, something about having taxes withheld, definitely. And also, let me just say, I’ve done lots of taxes over my lifetime, I’m going to be going to be 66 in about a month. And I remember a client, a lady, her name is Carolyn. And she never had a whole lot of income, but she had a nice annuity. So, every time she took a distribution from that annuity, that would now cause the taxation of her benefits. And she never had taxes withheld, because normally she did not need to pay any taxes. But when she took a distribution from the annuity, that would throw her into her taxable situation for her social security benefits. And that was a tough one.
Steven Jarvis: Yeah. And let’s get into that in just a second. I want to highlight one more thing from your description Marc of your own situation, where you talked about that part of the reason you’re going to go ahead and file that W-4V and elect the highest amount you’re allowed, which is that 22% is because you’re going to use that as essentially estimated payments for your LLC. And this is a great way for advisors to think about this, to work with your clients on it. When you fill that W-4V, don’t think about just how much taxes a client might owe on social security, think about how much taxes they might owe in total, because the IRS gives preferential treatment to withholdings of any kind. If the IRS gets to withhold it directly, they like having their money now. And regardless of the time of year that withholding happens, the IRS treats it as if it happened evenly throughout the year, which is different than estimated payments, where you can have underpayment penalties by paying in the wrong quarter or the wrong amount in a particular quarter.
So, there’s that added benefit of using social security to really allow us more flexibility in the timing and the form we pay the rest of our taxes due. All right. So, Marc, you brought up the next topic I wanted to get into, which is, and actually, Jim, you touched on this earlier too, with people being surprised that social security is in fact taxable, and just to make life more complicated, because why wouldn’t we, it’s taxes, it’s not as straightforward as when your wages are taxable or a lot of other things are taxable. Because we have two things we need to consider now, not just what is our marginal tax rate, but what percentage of the social security income is taxable to begin with? And so, I’d love to hear from you guys as to how you educate people on just helping them understand how to even think about this.
Marc Kiner: Well, Steven, we provide two services. Number one, we provide social security consulting to folks across the country. And number two, we educate advisors across the country about social security, increasing their value to clients. So, let me address it first from the angle of the advices that we educate, then Jim will talk about how his discussions go with the clients that he does consultations for or with. So anyway, towards the end of the day of our training, we do cover taxation benefits. We don’t go into the topic in any great detail, but we want to make sure advisors have a general or fundamental understanding of how benefits are taxable. So, there’s a term used and created by the internal revenue service. And it’s called provisional income. Depending on the level of that provisional income, it could be for a married couple or a single person if they file single, but let’s assume it’s a married couple.
So, we’re looking at the provisional income for a married couple, and that will help us to determine how much it benefits a subject income tax. I’ll let you know the brackets then I’ll tell you how provisional income is computed. If the provisional income is less than $32,000, none of your benefits are taxable, zero. If your provisional income exceeds $32,000 up to $44,000, then up to 50%, that’s five, zero of your benefits may be taxable. And then if your, and this is on a joint basis now, if your provisional income exceeds $44,000, then up to 85% of your social security benefits may be subject to income tax. So, how do you compute provisional income? That’s a $64 million question. It’s not difficult. You start out with the adjusted gross income, we’ll call that AGI. So, we’ll start out with the AGI before any social security benefits at all.
And to that, Stephen, we’ll add about 15 items. The most popular add back though is tax exempt interest income. That’s the most popular add back. I’m not going to go into the rest because they may not apply to many folks anyways. So, AGI before your benefits plus tax exempt municipal bond interest income, that gives you your MAGI. That’s modified, adjusted, gross income. And to that, we add one half 50% of your social security benefits. And that’s how we come up with your provisional income. So, once again, AGI before benefits plus tax exempt municipal bond interest income, and maybe some other add backs along the way, that gives you your MAGI. And then you add into that one half of your social security benefits, and that gives you your provisional income. If your provisional income on a joint basis does not exceed $32,000, none of your benefits are taxable. If your provisional income is between $32 and $44,000, up to 50%, and over $44,000 up to 85%.
Now also, just one to one more thing to keep in mind, there are about 12 states in this country that will tax your benefits. I don’t have them memorized, so I cannot tell you which states they are, but I do know. We live in Ohio, so Ohio, Kentucky, and Indiana will not tax any of your benefits. But there are 12 states around the country which will, so just keep that in mind.
Steven Jarvis: Well, if I could interject really quick just for some of our listeners and especially for our RTS members, this is where you want to have out your RTS tax reference guide. And if you’re watching the video, I’m showing mine because I have it laminated on my desk, because Marc did a great job of going through those numbers. I don’t have those numbers committed to memory, and so on the front of the tax guide, we’ve got one of the boxes for the social security benefit thresholds that he’s about. And then this is my favorite piece, is on the back of this guide, we have a map of the United States, and I’m showing Marc and Jim here, all of those circles there are the social security administration logo. To your point, Marc, there are states across the country that will also tax that benefit. Just for the lucky people in places like Montana and North Dakota and Missouri and Kansas and on down the list.
Marc Kiner: Now, Stephen, look at your chart, that map please.
Steven Jarvis: Yeah.
Marc Kiner: Are there 12 or 13 states highlighted?
Steven Jarvis: I have 13 states highlighted.
Marc Kiner: You still have West Virginia?
Steven Jarvis: I do have West Virginia. Did West Virginia change their rules?
Marc Kiner: They were supposed to come off that list in 2022. Now I’m wondering, because another advisor thought I was wrong. I’ll have to check it out. So, it’s either going to be 12 states or it’s going to be 13 states. The question is about West Virginia.
Steven Jarvis: Yeah. Well, great. I appreciate you bringing up that question. This just illustrates why advisors committed to tax planning will always have things to work on with their clients because this constantly changes.
Marc Kiner: Yeah. I’m the life of party, Stephen, when I go to a party, I talk about taxation of social security benefits. Everybody flocks around me.
Steven Jarvis: Yeah. Life of the party.
Marc Kiner: Yeah. Jim, you meet with about 10 to 15 clients during the month, how do you address taxation benefits with clients?
Jim Blair: Well, they’re going to ask and so I ask them if they want the good news or the bad news first, and they always say, well, I’ll take the good news. And then I always let them know there’s never any good news, it’s always been—but as Marc mentioned the good news is Ohio doesn’t tax it or Kentucky. Those are our biggest ones but we do talk to people across the whole United States. So, every once in a while we’ll run into someone. But what we’ll talk about, I hope none of your listeners track me down and throw stuff at me because I tell them to go see their CPA. But because even though we talk about 50% subject to tax, 85% is subject to tax, it isn’t always right at that number. It could be less than 50% or less than 85, but we always talk about worst case scenario.
You just take 85% of your benefit if you think you’re going to be over $44,000, most of our clients are. And then whatever tax brackets you’re in, that’ll give me an idea of what the tax could be, but it’s always good to run it through the tax software and see what it will actually be. But they always ask about it and that’s pretty much what we talk about is you want to make sure that you figure it out because they’re going to ask you how much do you want withheld? Not the dollar amount but that percentage.
And you’re going to have to pick one of those, do you pick 7% or do you pick 22%. So, you don’t want to pick seven if 22 is what you should be selecting. And that’s why it’s a good idea to run it through your CPA. Those folks who don’t use a CPA I tell them, well, just create on your tax software a little phony tax return and one shows social security and the one don’t, see what the difference is. But we do talk about it. Most of them ask. If they don’t ask I’ll remind them. So, they’ll know that there is that possibility.
Steven Jarvis: Yeah. That’s great. I love the way you cover that with clients. Yeah. It came up earlier as one of you were mentioning the situation of a client with an annuity that as they took distributions, or had distributions from the annuity, that can change throughout the year or from one year to the next, how much is taxable and other social security benefits, which is really important to understand from a planning standpoint when we get to those retirement years when there are more choices that a client can make about the timing of their income.
And yes, there are situations where regardless of what you do with the client, they’re going to be in the 85% social security taxable bucket anyways. But it’s something we want to be aware of because that’s a real nasty surprise if we haven’t taken into consideration. And as an advisor, you’ve made a recommendation on Roth conversion, or capital gain, harvesting, or even just, “Hey, do we wait until January to make this distribution or do we do it in December?” Those timing things can start to have a real impact on how much taxes a client is paying in a given year.
Jim Blair: And one other thing that I do bring up, it’s not necessarily taxes, but when they’re looking at their income and it has to do with how they file their taxes is, do you file joint or do you file separate, married but separate? Because then that can affect the AMA, the Medicare tax that they pay. If you file married but separate, you lose out on the first couple of brackets on the Medicare increase. And if your income is high enough that you’re going to pay more for Medicare, you jump right up there real quick. And you’re paying, I can’t remember off top my head but it’s a little over $400 a month I believe, instead of hitting those smaller brackets to go up there. So, whether you file separate or joint can be a decision that they need to talk to their tax advisor about as well.
Steven Jarvis: Definitely. And I mean, a couple other things that come to mind related to social security, not necessarily directly tax related, but just of couple months ago, we did a newsletter for our members, all on social security and action they can take with their clients. And love each thoughts on this. One of the things we recommend is that regardless of your client’s age, go ahead and have them go establish their account with the social security administration. You don’t have to be about to retire. You don’t have to be in Marc’s position where you’re getting ready to apply for those benefits. You can create your account today. And the reason this is important is because unfortunately there’s a lot of fraud and a lot of scams that go on around social security and a great way to make sure that you are the one in control of your account, go ahead and go create it.
Jim Blair: That’s very important. Actually, you can create the account if you’re age 18 or older. I encourage everybody to do it. If for no other reason when you’re really young, because most of them don’t think it’s going to be there. But you know what, when I was that young people thought the same thing too, and now we’re drawing our benefits. So, you want to make sure that your wages are posted correctly. The fraud part of that is very important. That’s becoming worse and worse over time.
You want to get that created so that you’ve got control of your own account and you can keep an eye on it. So, I agree with that 100%, everybody should create their account. And if you want to file online, you have to have the account. You don’t have to have to file an application, but in that case, then you have to go through the social security administration. Whereas if you have the account created, you can file online, but you’re going to want to look at your benefit statement throughout your working career just to make sure that your wages are posted correctly.
Steven Jarvis: Yeah. Definitely. It’s such a great value add for advisors to provide to their clients. Again, regardless of their age, Jim, like you said, as long as they’re 18, they can create this account and it doesn’t take long to create. You can go to the social security administration’s website, but it’s a great way to make sure your wages are going to report correctly. And it’s a great fraud prevention measure.
Jim Blair: Right. Because they don’t mail those statements out anymore. At least until you’re 60, if you haven’t created an account they’re supposed to mail it to you. That said, I talked to a lot of people over 60 without an account and they haven’t seen a statement in years. Some people get them some people don’t.
Steven Jarvis: Yeah. So, even if you’re listening or your clients are in the really cynical bucket of, “Hey, I’m never going to have social security. So, why sign up?” It’s not a big time commitment. We’re not asking you to invest your entire Friday or any sort of financial commitment to get that account set up. It’s a great step you can take to set yourself up for success. Marc, Jim, as we move to action, any other little tips and tricks like that? Like getting your account set up with the social security administration that you like to share with either clients you work with directly or with the financial professionals you work with?
Marc Kiner: Well, let me say that in the class we teach, we focus on situational social security. Every client will be in a different situation. They may be married, single, divorced, surviving spouses, might have young kids we need to factor in, clients may be able to follow that restricted application. They may have an opportunity to claim six months worth direct active benefits and full retirement age now for folks turning 62 this year, 2022, is 867.
So, we make sure at the end of the day, advisors understand the questions and issues that relate to every one of their unique clients. Plus, we talk about probing social security questions. How advisors can ask the right questions so clients cannot cover additional benefits. Please the listeners to your podcast, Stephen, are the clients’ trusted advisors. They need to understand how social security works so that they can help their clients. The last thing you want an advisor to do when a client comes in and utters the word social security is, A, hide under their desks, have them call the toll free number, have them visit the local office or have the advisor take an extended restroom break. The advisor is the trusted advisor and needs to be educated, and needs to understand how social security works to help their clients sort through their social security options. Jim.
Jim Blair: And through situational social security, we like to emphasize the fact that the, the advisors need to be proactive. Their client may say I’m going to file for social security benefits. And that may not be the wisest thing for them to do at that time. Or there may be benefits that they’re not aware of that they could be drawing while they’re waiting to take their own. One of those could be, as Marc mentioned, if you have a deceased spouse in your past, you could maybe draw off of that work record and save your own until age 70 or take your own early and take the survivor benefit later. So, lots of different situations for people to take into consideration. A big one that we see fairly often is they have a disabled child and a lot of people know that the children can draw benefits if the parents deceased, but a lot of them aren’t aware that also applies in a life case if the parents on retirement or disability benefits. So, it’s real important to be proactive.
Steven Jarvis: Yeah, I really appreciate that insight. You’ve mentioned that the trainings you do a couple of times and we’ll make sure the link gets in the show notes, but if people are listening and interested in this deep dive on social security, how would they follow up with this?
Marc Kiner: They can send me an email or call me, my email address is firstname.lastname@example.org. And my office number is (513)-247 0526. At least I hope it is, that’s sound right, Jim?
Jim Blair: That sounds right.
Marc Kiner: (513)-247 0526 or they can go to our website for the education, which is premiernssa.com. That’s premiernssa.com.
Steven Jarvis: Perfect. And like I said, we’ll get all that linked in the show notes for everyone to follow up with so that, yeah, as you’re working with clients and you need this more detailed information, there’s great resources out there like Marc and Jim that can help provide that. We always like to wrap up the show with action items to make sure that people are taking the information we share and implementing it, because that’s where the real value comes from.
I already touched on the first one, but I would strongly recommend that anybody listening include signing up for social security administration account as a value add to your clients this year, whether that’s included in a newsletter or a separate communication you send to them. If you haven’t done that recently, help your clients understand how they can do that, make this easy for them, send in the link, send them the information, record a loom video of you signing up, if you haven’t done your own. There are ways to hit the easy button for your clients and give them that additional value add during this year. So, that’s the first action item I would recommend. Marc and Jim from the conversation we’ve been having today, any specific actions you’d recommend listeners take?
Marc Kiner: All the listeners should help their clients to make a plan, to understand and to maximize their social security benefits. Some items to consider, the annual earnings test, how benefits are calculated, are your client’s public employees? Are they’re divorced? Are they married? Are they single? Were they born by that magic birthdate of January 1st, 1954, if they were, they can file a restricted application. So Stephen, the action plan is get educated about social security, 76 million baby boomers out there. Some of them are your clients and they need your help. So, that’s the action item. Get educated.
Steven Jarvis: I appreciate that. The last action item I’m going to throw out there, of course will come as no surprise to our listeners, but make sure you are getting tax returns. Social security gets reported on the tax return regardless of how much of it is taxable. There is a line for total, social security, and the taxable portion. There’s a lot you can learn whether your client is currently taking social security or is getting ready to take social security about how that will be taxable. So, make sure you’re getting those tax returns every year and make sure you’re doing something with those tax returns. Marc, Jim, thanks so much for being on the show today. Really enjoyed having you on.
Marc Kiner: Thank you too, Stephen. I had a great time.
Jim Blair: Oh yeah, I love talking about social security. It’s all I know about. So, glad to be here.
Steven Jarvis: Really appreciate it guys. For everyone listening, thanks for listening in and until next time, remember to tip your server and not the IRS.
We’re not overpaying. No, we’re not overpaying. We’re not overpaying anymore. The tax code’s complicated, boring, and overrated. You don’t want that, you want a pro. One thing that you should know: this is a radio show. It’s not tax advice, don’t take it that way.
The information on this site is for education only and should not be considered tax advice. Retirement Tax Services is not affiliated with Shilanski & Associates, Jarvis Financial Services or any other financial services firms.