Will Quarterly Payments to the IRS Increase My Social Security?

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I waited until I turned 70 last month to apply for Social Security so that I could receive the maximum benefit. I’ve been the pastor of a small church for the last 15 years, and they didn’t take deductions, so I paid in quarterly on the advice of my accountant, so I’d have money saved up when it came time to apply for Social Security. After Medicare was deducted, I received my first SS payment in March for $1757.00. I was told that once you reach the age of 70, you receive the maximum SS benefit, but my accountant believes that I can still pay in quarterly to increase that $1757. What should I tell my accountant if I don’t want to pay in anymore if it won’t increase my amount (other than cost of living increases)? He is awaiting my response before completing my income tax return. Inquisitive Pastor’s signature

 

Social Security Benefits

 

Dear Inquirer: I assume you mean that your church earnings 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 main reason to pay quarterly estimated taxes is to avoid an IRS penalty – Social Security will use your annual income (regardless of when you pay the IRS) to determine if your benefit should be increased. And whether your current church income will increase your Social Security benefit is determined by your lifetime earnings history of contributing to the Social Security program.

Also see Did you know that?

The Social Security benefit you are now receiving is based on your lifetime earnings history, specifically the 35 years of your life when you earned the most (adjusted for inflation). To compute your benefit amount, Social Security always uses a 35-year window, selecting the highest earning years from all of your earning years. If you have fewer than 35 years of earnings, they will add enough “zero” years to bring it up to 35 in order to calculate your benefit. That is, if you have fewer than 35 years of SS-covered earnings, your church earnings will eliminate one of those “zero” earning years, resulting in a small increase in your Social Security benefit. If you already have at least 35 years of SS-covered earnings, your recent earnings will only increase your SS benefit if they are greater than any of the 35 inflation-adjusted years used to calculate your age 70 benefit. Whether you pay quarterly estimated income taxes to the IRS or not, Social Security will make that determination, and they will automatically increase your monthly benefit if your current annual earnings from the church warrant it.

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Although how you pay the IRS has no bearing on Social Security’s determination, failing to pay estimated taxes quarterly may affect your total income tax obligation for the tax year, as your accountant should be able to tell you. And, whether you pay the IRS quarterly or not, if you file your tax return as a self-employed taxpayer, you must pay into Social Security through self-employment taxes.

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