Tax Caster Example - The Wall

The following is an example of the effect of an additional $1,000 of earned income when you are receiving social security benefits prior to your normal retirement age. It illustrates an absolutely unbelievable tax and penalty federal rate of over 98%.

Step 1: Just fill in your age as 63, then click "Your Income".
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Step 2: Enter your earned income wages as $14,640, then click "Other Income".
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Step 3: Enter your IRA/Pension Distribution as $19,000
and your Social Security Benefit as $20,000.
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Take note that your Balance Due is $5,174, then change your entries to reflect an additional $1,000 of earned income wages which will result in a $500 government take back of your Social Security Benefit.

Step 4: Change your wages to $15,640
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Step 5: Change your Social Security Benefit to $19,500
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Your Balanced due is now $5,586. You increased your earned income $1,000 for which you are paying $412 in additional federal income tax. But you are also giving back $500 in Social Security Benefits, so that brings your cost to $912. Since this is earned income you are also paying OASDI withholding of $62 plus Medicare taxes of $14.50. This brings your total taxes and take backs up to $988.50 or 98.85%, and this percentage does not include any state or local taxes.

Income Before After
IRA/Pension remains the same $19,000.00 $19,000.00
Wages: you earn $1,000 more $14,640.00 $15,640.00
Your Social Security Benefit doesn't change $20,000.00 $20,000.00
But you have to "Give Back" part of it!   $(500.00)
Taxes    
This is earned income so you pay 6.2% OASDI $(907.68) $(969.68)
And you also pay 1.45% Medicare $(212.28) $(226.78)
Federal Tax calculated by TaxCaster $(5,174.00) $(5,586.00)
Net income after federal taxes and take back $46,846.04 $46,857.54
Change in earned wages $1,000.00
Resulting change in take home pay $11.50
Percentage of extra earnings that you take home 1.15%

And I just have to say it one more time; if you include state and local taxes, you literally have to pay the government for the privilege of working harder. And, this example happens when your gross income is just $53,640 !