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How Does BK Effect Future Social Security Retirement Benefits?

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  • How Does BK Effect Future Social Security Retirement Benefits?

    There are two ways to completely eliminate income tax liabilities. One is through BK, assuming the the taxes meet the requirements specified many times in this forum, and the second is by "waiting them out," which takes 10ish years.

    But my question is not concerning this directly, BUT what happens when a person reaches retirement age who has filed BK or has "waited out" the ten years for taxes to fall of their record?

    Will all or part of a past-BK filer's taxes from however many years ago they were discharged no longer be able to be used to calculate a person's retirement Social Security benefits? In other words, say you had, oh I don't know, 10 years of taxes discharged, meaning you didn't have to pay them. Will those discharged tax years no longer be eligible to be used to calculate your Social Security when you retire?

    I mean, I can't really complain too loudly about this if it is the case, right? lol Because technically the tax-payer (or non payer for those years lol) has NOT paid into the Social Security fund for their own benefit, right?

    So while this will certainly hurt me, and many others, one could make the case that fair is fair. But like most laws, things are never this simple.

    So does anyone know for sure what happens, with regard to retirement Social Security, to those "lost years" that a person filed taxes but didn't pay them because of BK or waiting them out?

    Thanks everyone!

  • #2
    I don't think this is an issue. OASDI (old age, survivors, disability insurance) are different from IRS Federal income tax. These, I believe, are known as trust fund taxes and they are never discharged.

    So when you owe the IRS $30,000 that's for the Federal income tax and not for the OASDI/Medicare/FUTA portions of the tax.

    At least, that's my understanding as both an individual and an employer.
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog


    I am not an attorney. Any advice provided is not legal advice.

    Comment


    • #3
      Originally posted by justbroke View Post
      I don't think this is an issue. OASDI (old age, survivors, disability insurance) are different from IRS Federal income tax. These, I believe, are known as trust fund taxes and they are never discharged.

      So when you owe the IRS $30,000 that's for the Federal income tax and not for the OASDI/Medicare/FUTA portions of the tax.

      At least, that's my understanding as both an individual and an employer.
      Hello, justbroke, and thanks for the answer. I am either not understanding your answer or you didn't understand my question. So let me re-state it:

      When you pay Federal Income Tax, a portion of your tax liability is Social Security. In Other words, when you pay your Federal Taxes, you are paying into your own future Social Security benefits, both for possible disability and for retirement. I believe it is 15% of your income? If you file a W2, your employer pays half and half is withheld from your taxes.

      Now say you are like me, and have spent most of your adult life as an Independent Contractor, so instead of filing a 1040, you file from your 1099s.

      It becomes complicated, at least in my uneducated opinion, when you have discharged taxes for years that you NEVER paid into Social Security for those tax years. See my point?

      So, let's use my 10 years as an example:

      When close to retirement age and calculating what you will likely receive as Social Security retirement benefits, on a monthly basis, you are told to use your 35 highest income years in the calculations, and if you don't have 35 years of on-the-books work to use, then you would enter in a $0.00 for any missing years.

      So my question is, when calculating your Social Security benefits for retirement, say you had TEN FULL YEARS of taxes discharged, both through BK and through waiting some years out. Because those years, you would NOT have paid into your Social Security benefits, since those taxes you never paid, either the "pure Federal" taxes or the 15% for Social Security.

      Are those years then precluded from your use when calculating your SS retirement benefits?

      Comment


      • #4
        Originally posted by NSH View Post
        When you pay Federal Income Tax, a portion of your tax liability is Social Security. In Other words, when you pay your Federal Taxes, you are paying into your own future Social Security benefits, both for possible disability and for retirement. I believe it is 15% of your income? If you file a W2, your employer pays half and half is withheld from your taxes.
        I understood what you wrote, but there-in is the problem.

        Your "federal" taxes are apportioned into income tax, OASDI, Medicare, and FUTA (federal unemployment insurance). You can not discharge social security taxes and you never will discharge the so-called "trust fund" taxes. If you never paid them then they can't count. You discharge the "income" tax portion and not the trust-fund taxes. I don't know what the ramifications of not paying OASDI, Medicare and FUTA/SUTA. I do know that they'll hound you forever for employee tax withholdings (on a 941). I don't know whether you're a principal and the income was all passthrough.

        Originally posted by NSH View Post
        Now say you are like me, and have spent most of your adult life as an Independent Contractor, so instead of filing a 1040, you file from your 1099s.
        I'm not 1099 and I'm a W-2 consultant. (I have been 1099 in the past.). If you owe trust-fund taxes, you may still be compelled to pay those trust-fund taxes or they just don't count.

        Remember, you can't discharge trust-fund taxes. If you don't pay them then they don't count. The SSA would not know of these taxes paid into the system because you never paid them. Unless you're saying that you reported paying on a 941 that you "collected" these from the employee, but never paid them that could be a different story.
        Last edited by justbroke; 06-13-2017, 09:22 PM.
        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog


        I am not an attorney. Any advice provided is not legal advice.

        Comment


        • #5
          Originally posted by justbroke View Post
          Unless you're saying that you reported paying on a 941 that you "collected" these from the employee, but never paid them that could be a different story.
          No, I am not responsible for taxes for "employees" that I was supposed to withhold from, so that isn't an issue. I am having a disconnect here. Because I am trying to figure out if all those years of income tax I had discharged and the ones that simply "fell off" are going to somehow come back to haunt me at some time in the future.

          I can tell you that the years that either "fell off" my record due to time or were discharged in my 2015 BK were completely discharged. Meaning the IRS sent me some kinds of letters stating that the liens no longer exist, and the only taxes I still owe are the couple of years that were not discharged, because they didn't fall into the right time frame.

          Let me put it this way: The years that were discharged OR fell of my record had part of the returns apportioned for Social Security. Now, since I am no longer on the hook for those years, the IRS has not bothered me about paying the Social Security.

          So where I am unclear is, when I do my Social Security at retirement, will the Social Security office then tell me that those years I filed returns for, BUT I never paid taxes on are not able to be counted toward my retirement benefits?

          Because that is the part of your post I am not understanding, and the purpose of this thread.

          Comment


          • #6
            Social Security earnings are generated from reported payments to the SSA. If you didn't report and pay OASDI/Medicare withholdings either through your tax return (self-employed tax) or through 941s, then there is nothing in the SSA system to reflect payments.

            Retirement benefits are based on contributions to the SSA system. If you made no contributions then there is nothing to calculate. The IRS and SSA share earnings and payment records. If you never paid the OASDI/Medicate/FUTA taxes then there would be no earnings in the SSA system (or at least no contribution shown). (No contributions doesn't necessarily mean no benefits, but OASDI is for workers that contributed to the system.)

            To clear this up, simply contact the SSA and ask for a Social Security Statement. That will tell you what was actually paid into the system for each year of employment since your first started working. You can also go to a local office and ask for a quarterly earnings statement as they should have every single quarter you ever worked (and it was reported). The SSA has alternate methods to calculate your benefits if you have a span of years where nothing was collected, but I don't know how that works or if you ever contributed to OASDI.

            As a former employer, a W-2 employee, a 1099 contractor and having had employees, that is how I understand the process.
            Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
            Status: (Auto) Discharged and Closed! 5/10
            Visit My BKForum Blog: justbroke's Blog


            I am not an attorney. Any advice provided is not legal advice.

            Comment


            • #7
              It sounds like he has never reported any OASDI/Medicare liabilities through the Schedule SE that should have been attached to his prior returns that is required for 1099ers. The Schedule SE uses the profit amount of your Schedule C after deductions as the earnings that is reported to SSA and Medicare for their insurance purposes. That profit amount is also the amount that you use to compute your SSA and Medicare tax liabilities.

              Comment

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