Sunday, April 20, 2014

The Bag Lady, the IRS, and the SSA

It's been about the government's money this week. The Bag Lady has been busy.

On April 15 I put a check for $3,200 in the mail to the Department of the Treasury.  

It used to be easier to file our taxes, and we almost always got a refund. Not so this year. It's because we're retired now. I quit my job just before I turned 62, but I didn't want to collect my pension until I turned 65, when I'd get my full entitlement. So, each month for three years, I took a pension-equivalent amount from an inheritance I got from my mother and moved the money into our checking account. For the last three years, we've been living on the amount we'd be getting from our pensions once I did retire. Problem was, the money from my mother had already been taxed, so our income tax returns didn't include that monthly amount. Because we showed a lower income, our deductions kicked in at a lower level and our taxes were lower. 

Not so this year. I turned 65 in September and my first pension payment arrived in October. Three months of taxable pension income got included. Plus, my husband turned 70 1/2 so he had a required distribution on his 401(k). And that money was taxable too.

I didn't like putting $3,200 in the mail to the IRS. But I feel grateful that we have the resources in our retirement to owe the money. It started me thinking about how we might spend a little more on deductible things - like contributions to causes we feel strongly about - instead of sending money to the government. The government and I often disagree on how its money should be spent.

On April 16 I spent an hour at the local Social Security office. As I said, I started collecting when I was 62. For the last 20 years of my career I worked for a company that didn't pay into Social Security, so I knew that when I retired the WEP (Offset Of Some Kind) would reduce my Social Security entitlement. When October rolled around last year and I got my first pension payment, I went to the local SS office, gave them the paperwork and told them I needed to have my check amount changed. They said okay. Three months later, no change. I went down again and repeated my request. They took my documents again. This time I got two sets of paperwork - one from Washington and one from Alabama - to fill out regarding my pension. I sent it in. Last month I got a letter saying my SS entitlement was being changed because of my pension.

I had done my research and I knew my SS check should be about $300 a month less once the pension kicked in. I'd been putting that amount away each month since October. But the difference in my revised check was only $20.

That's why I went down to the local office again on April 16. I waited half an hour for my turn. Told the man my circumstances. He went to talk to the manager. Came back. Said, "Your check is correct. You worked for 30 years so your WEP isn't affected. I said, "Yes, but the last 20 of those years were in a job that didn't collect Social Security." He went to talk to the manager. Came back again. "You are right. Let me copy your paperwork and we'll send it off. You should hear within a month."

I could have just kept my mouth shut and collected the $300 extra each month. But I didn't because (1) I'm not entitled to it and (2) I know the Social Security Administration will find out eventually - like maybe 20 years down the road when I'm really a Bag Lady - and want their $72,000 back, plus interest. Nope. Not going to happen.

On a more pleasant note, I helped save Snohomish County money this week by mediating as a volunteer in Small Claims Court. Two gentlemen had a business dispute, and after an hour and a half of facilitated conversation they agreed to settle their difference instead of going to court.

The Bag Lady is doing her part!

16 comments:

#1Nana said...

You do your part by paying taxes too! I'd like to play a smaller role. I really should stop working my little part time gigs. I think I pay more in taxes than I earn.

DJan said...

We had to pay last year, so this year I had them take more taxes out of our annuities, and we got $169 back. I like that much better. It would really hurt to pay them thousands all at once. :-)

Perpetua said...

The US tax system is so different that I keep trying to work out how we would deal with it in our situation, Linda. Here income tax is deducted at source from our professional pension payments each month, though we do have to do a tax return each year to take account of the tax due on our state pensions (what you would call Social Security) which are paid untaxed. Glad you’re getting it sorted out at last.

rosaria williams said...

I'm glad it all got straightened out. Yes, finding and contributing to causes you believe in would give you a little break in taxes. Overall, taxes support all the services that we enjoy, including those pesky regulations that keep people from poisoning us.

Olga Hebert said...

Taxes. I have just been informed that I am a "first time filer" in the State of VT. Never mind that I have filed for the past fifty years. Apparently becoming a widow makes you an unknown person. Honestly, this is a cause I could get behind. When my sister-in-law died, SS got the idea that it was her husband who had passed so they cut off his income. It's not enough that you have the emotional stuff to deal with, having to deal with bureaucracy on top of it is just insult to injury.

Arkansas Patti said...

I admire you for hanging in. That $72000 later would really hurt and they do eventually figure it out.

Tom Sightings said...

My feeling is that the money we have left over after we pay our own expenses -- that's the amount we should pay in taxes. Unfortunately, the IRS doesn't feel the same way. So I, too, sent in a check for approx. $3200. Oh, well ...

Linda Reeder said...

One year the IRS sent me a check for about $6000 as my refund. when I got to checking, because I knew this was wrong, they had sent me the total of the withholding we had paid in. It had come directly to our bank account and by the time I discovered it it was near to April 15. I got on the phone, and then had to work like crazy to get someone to understand the error. Finally I got it straightened out. Why didn't I just keep the money. Same reason you didn't. Sooner or later the truth would come out and I would owe penalties. The IRS doesn't make errors that they have to pay for. Only tax payers do.

Grandmother (Mary) said...

We payed taxes this year as well but I also felt grateful to have more income this year necessitating more taxes. Like Rosaria said, it keeps the services coming.

Patrice Mills said...

Glad you got everything sorted out. You're right about the fact that the government will eventually find out anyway, so it's best to be safe now than be sorry in the future. Doing your part in paying taxes doesn't look particularly giving, but making sure we're paying the correct amount can prevent future visits from tax collectors for wrong payments.
Patrice Mills @ MillsCPA.com

Dee said...

Dear Linda, the Social Security story you told is one that could truly frustrate many of us, but you know what you are about and you do it! I admire that. And I also admire your ability to facilitate. I know you took classes and it's good to see you using your abilities. Peace.

Retired English Teacher said...

Taxes. Yep, we had to write out a check.

Skyline Spirit said...

pretty nice blog, following :)

joeh said...

I forgot a quarterly payment this year, hurts, but if you owe you owe.

You are probably smart to correct their error, it would really hurt if they caught it later and you would worry the whole time even if it was not caught.

dkzody said...

We too had to pay a small amount to the IRS, but the state tax refund almost covered it. My pension is taxed before I ever get my money. However, this year I pulled money from an annuity so had to pony up those taxes, still at a much lower rate than when I was earning that money.

As for Social Security, I was told by state teacher's retirement that since most of my years were spent in private industry, paying into social security, that I am considered a gross contributor and my SS benefits will not be penalized. However, I am planning to wait until I'm 70 to apply for SS.

Brad Post said...

It seems like you had a pretty busy week, but it’s nice that everything seems to be doing pretty well. Anyway, it’s great to hear that you didn’t take advantage on the local SS office’s mistakes, otherwise you would have been in big trouble later on. Thanks for sharing this, Linda. Have a great day!


Brad Post @ Jan Dils