What the Heck?

Powering Your Retirement Radio

What the heck? There are so many things that make us scratch our heads when we hear how they work. In this episode, I will share with you what Filial Laws are, what the Hold Harmless provision between Social Security and Medicare is, and finally I wrap up with why the self-employed have to file returns to avoid a very negative effect on their Social Security benefits.

1. Filial Laws

In 29 states and Puerto Rico, there are Filial Laws on the books. The short version is that children can be held responsible for certain expenses incurred by their parents. When I heard about Filial Laws and did a little research I was shocked that these laws are on the books. Now, let's be realistic, I don’t think this is going to see widespread enforcement any time soon. With a little Googling, I found that Pennsylvania may have been the last state to actually enforce these laws. That was in 2012. Given state budgets, it wouldn’t shock me to see this topic crop up from time to time over the next decade.

I do help the occasional client with Extended Care policies. These are clients that have experienced the decline of a parent and want coverage or are driven by the desire to not be a burden to their children.

2. Hold Harmless agreement between Social Security and Medicare

Anyone collecting Social Security who is 65 or older is hopefully aware that Medicare premiums are automatically deducted from Social Security payments. As you are also likely aware that every year there is a Cost of Living Adjustments (COLA) for both Social Security and Medicare.

Occasionally, the Medicare increase can be greater than the Social Security increase. Since Social Security payments are larger than Medicare payments everything works out okay most of the time. In recent years, with very little or no COLA on Social Security, you could end up with a larger Medicare premium increase than a Social Security payout increase.

The Hold Harmless Provision says if the Medicare bill increases more than the Social Security payment increases, they can not lower your Social Security payment to cover the cost. As you might guess, there are exceptions to this. The one I hear of the most often is for those deferring Social Security payments until age 70. Since they are paying Medicare premiums out of pocket, they pay for the increase since they are not collecting Social Security yet, and their payment can’t be reduced.

3. Unfiled returns and their negative effect on your Social Security

Haven’t filed a tax return in a while? If you’re self-employed or have a side-gig, you could be losing out on Social Security. Because self-employed taxpayers pay both the employer and employee portion of the social security tax, they are personally responsible for reporting their earnings to the Social Security Administration. They do this by filing Schedule SE with their 1040. However, there is a limited amount of time in which to do so. Namely, three years, three months, and 15 days following the end of the calendar year in which they earn the income. Self-employed taxpayers who for whatever reason fall behind in their filing requirement, or need to amend a previously filed return, will not get credit for their self-employment income if the earnings aren’t reported within this time period.

As a reminder, the Social Security Administration no longer mails out annual Social Security statements. If you haven’t done so yet, you should register on the Social Security Administration's website to view a record of your earnings. Check the website periodically to ensure that your wages and net self-employment earnings are properly reflected. If there is an error, you must act before the three-year time limit expires to ensure you get credit for all your earnings.

That is it for this episode, if you knew about all this, good for you. I know a lot of advisors that don’t. I am always interested in topics you may have an interest in feel free to drop me an email with your suggestions.

I will have a series of podcasts over the summer focused on Digital Assets, stay tuned for more on that in one of my upcoming episodes.

Until the next episode, be well, and stay safe.

Dan Leonard