Dear Rusty: I waited to sign up for Social Security until I turned 70 last month so I would qualify for the maximum benefit. I have been the pastor of a small church for the last 15 years and they didn’t take out deductions, so I paid in quarterly at the advice of my accountant so I would have an amount built up when the time came for me to sign up for Social Security. I received my first SS payment in March for $1,757 after Medicare was deducted. I have been told that once you turned 70 you get the maximum SS benefit, but my accountant thought that I can still pay in quarterly to boost that $1,757. I don’t want to pay in anymore if it’s not going to increase my amount (other than cost of living increases), so what do I tell my accountant? He’s waiting to hear from me before he completes my income tax return. Signed: Inquisitive Pastor
Dear Inquisitive: By “pay in quarterly” I assume you mean that your earnings from the church are reported on IRS form 1099 and that you pay quarterly estimated income taxes to the IRS to avoid a penalty when you file your annual taxes. The primary reason to pay quarterly estimated taxes is to avoid an IRS penalty – paying your taxes quarterly doesn’t matter to Social Security because they will use your annual income (regardless of when you pay the IRS) to see if your benefit should be increased. And whether your current income from the church will increase your Social Security benefit depends on your lifetime earnings history of paying into the Social Security program.
The Social Security benefit you’re now receiving is based on your lifetime earnings history, specifically the 35 years over your lifetime in which you had the highest earnings (adjusted for inflation). Social Security always uses a 35-year window to compute your benefit amount, choosing the highest earning years from among all your earning years. If you have fewer than a full 35 years of earnings, they will add enough “zero” years to make it 35 to compute your benefit. What that means is that if you have fewer than 35 years of SS-covered earnings, your earnings now from the church will eliminate one of those “zero” earning years, which would result in a small increase to your Social Security benefit. However, if you already have at least 35 years of SS-covered earnings, then your current earnings will only increase your SS benefit if your recent earnings are more than any of those in the 35 inflation-adjusted years used to compute your age 70 benefit. Social Security will make that determination whether you pay quarterly estimated income taxes to the IRS or not, and they will automatically increase your monthly benefit if your current annual earnings from the church call for it.
How you pay the IRS won’t factor into Social Security’s determination, but not paying estimated taxes quarterly may affect your total income tax obligation for the tax year, which is what your accountant should be able to tell you. And if your tax return is filed as a self-employed taxpayer, you’ll need to pay into Social Security via self-employment taxes, whether you pay the IRS quarterly or not.
Russell Gloor is an Association of Mature American Citizens certified social security advisor. To submit a question, visit amacfoundation.org/programs/social-security-advisory or email ssadvisor@amacfoundation.org.
