IRS Alerts Payroll and HR Professionals to Phishing Scheme Involving W-2s

IR-2016-34, March 1, 2016

WASHINGTON — The Internal Revenue Service today issued an alert to payroll and human resources professionals to beware of an emerging phishing email scheme that purports to be from company executives and requests personal information on employees.

The IRS has learned this scheme — part of the surge in phishing emails seen this year — already has claimed several victims as payroll and human resources offices mistakenly email payroll data including Forms W-2 that contain Social Security numbers and other personally identifiable information to cybercriminals posing as company executives.

“This is a new twist on an old scheme using the cover of the tax season and W-2 filings to try tricking people into sharing personal data. Now the criminals are focusing their schemes on company payroll departments,” said IRS Commissioner John Koskinen. “If your CEO appears to be emailing you for a list of company employees, check it out before you respond. Everyone has a responsibility to remain diligent about confirming the identity of people requesting personal information about employees.”

IRS Criminal Investigation already is reviewing several cases in which people have been tricked into sharing SSNs with what turned out to be cybercriminals. Criminals using personal information stolen elsewhere seek to monetize data, including by filing fraudulent tax returns for refunds.

This phishing variation is known as a “spoofing” email. It will contain, for example, the actual name of the company chief executive officer. In this variation, the “CEO” sends an email to a company payroll office employee and requests a list of employees and information including SSNs.

The following are some of the details contained in the e-mails:

  • Kindly send me the individual 2015 W-2 (PDF) and earnings summary of all W-2 of our company staff for a quick review.
  • Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary).
  • I want you to send me the list of W-2 copy of employees wage and tax statement for 2015, I need them in PDF file type, you can send it as an attachment. Kindly prepare the lists and email them to me asap.

The IRS recently renewed a wider consumer alert for e-mail schemes after seeing an approximate 400 percent surge in phishing and malware incidents so far this tax season and other reports of scams targeting others in a wider tax community.

The emails are designed to trick taxpayers into thinking these are official communications from the IRS or others in the tax industry, including tax software companies. The phishing schemes can ask taxpayers about a wide range of topics. E-mails can seek information related to refunds, filing status, confirming personal information, ordering transcripts and verifying PIN information.

The IRS, state tax agencies and tax industry are engaged in a public awareness campaign — Taxes. Security. Together. — to encourage everyone to do more to protect personal, financial and tax data. See or Publication 4524 for additional steps you can take to protect yourself.


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Government Spells Out the New Social Security Rules

Boomers who are in their sixties, tune in: The Social Security Administration has finally issued official guidance on the phase-out of two popular claiming strategies, and if you qualify, you need to act quickly.

The agency issued an emergency message to its field offices on February 18 regarding the phase-out of the benefits of the file and suspend strategy. If you will be full retirement age of 66 or older by the end of April, you need to consider immediately whether you should file and suspend your benefit because the deadline to make that move is April 29 — a day earlier than most experts expected. The agency says it will honor file and suspend requests made by April 29, even if the agency does not process the request until after that date.

Filing and suspending by April 29 has a few advantages. Primarily, it will allow a lower-earning spouse to claim a spousal benefit or minor children to get benefits off your record while you delay taking your benefit, which will earn 8% a year in delayed retirement credits until you turn 70. Under the new rules effective April 30, a married spouse who suspends his benefit also suspends all other benefits, such as a spousal benefit, paid off his record.

Suspending a benefit by the April deadline also allows you to get a larger lump sum if you later decide delaying was a mistake. Under the old rules, if you file and suspend your benefit while it earns delayed credits, you can later change your mind and get a lump sum of benefits going back to the day you filed. (Your monthly benefit would also revert to the amount it was worth on that date, wiping out the delayed credits.) As of April 30, this move is no longer possible.

One piece of good news: The guidance confirms that a divorced spouse doesn’t have to worry if an ex suspends his benefit. If one ex-spouse decides to suspend his benefit, the other ex-spouse can still apply for spousal benefits off his record, if she meets the eligibility requirements to qualify for that benefit.

The agency also issued guidance on the other claiming strategy that is phasing out. The agency confirms that those who were born on January 1, 1954, or earlier still qualify to use the “restricted application” strategy. This strategy allows an eligible beneficiary who is full retirement age to apply for a spousal benefit only, while allowing his own benefit to earn delayed credits.

Also, a spouse born on January 1, 1954, or earlier who takes her own benefit early but becomes eligible for a spousal benefit once her spouse has applied for his benefits won’t automatically have to claim the spousal benefit if it’s higher. She could choose to wait to bump up to the higher spousal benefit once she turns full retirement age. (Under the rule changes, those born after January 1, 1954, are automatically given the higher of their own or their spousal benefit, once they are eligible for both benefits.)

But beware if you are eligible for both strategies: Make sure you don’t want to use the restricted application strategy before filing and suspending, because you can’t do both. Run your numbers and see which strategy will pay out more before making any move.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc
February 22, 2016
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PA 529 College Plan – (800) 440-4000

For your PA 529 College Plan, we’ve been asking for your year-end statement showing the calendar year contributions.

Apparently, that statement only shows your contributions for the last quarter of the calendar year.


You can get the info that we need by logging into your account at

Go to <account overview>

Go to <transaction history>

Go to <contributions>

Instead of asking for the last 12 months, specify your dates from 01/01/20XX – 12/31/20XX, where XX is the year of your tax return that we are working on.


The report will NOT show the student’s social security number (SSN).

BUT, the Pennsylvania Department of Revenue wants the entire SSN of each student to whom you contributed, (even if they’re your grandchildren, or anyone else that might not be listed on your return).

if you have given us their SSN before, we don’t need it again.



(1) fax the calendar year report to us at 610.446.0441, or

(2) email the report to , or

(3) mail the report to us at 2024 Darby Rd, Havertown, PA 19083-2305.

(Try not to send SSN’s via email.  Either call them in, or mail them in to us.)


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Auto log/diary

IRS requires this, to document your auto / mileage expenses.



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The Tax Organizers Are Coming Next Week – Get out your Driver’s License!

Your Tax Refund May Take Longer, But at Least You’ll Get It

More security to combat increased identity theft threatens to delay processing this year.

Last year’s income tax season was marked by an explosion of refund theft. Will this year be any different?

Increased protections may cut down on fraud but will likely draw out the wait for your money. Changes will be visible when you use tax preparation firms and filing software, with warnings akin to those from your bank if you try to log in from a new device or change account information. Less visible will be broader changes, such as revamped fraud-sniffing programs used by the IRS, states, and the tax prep industry, as well as new information-sharing agreements among all three.

Whether these measures will make it appreciably harder for someone to use your identity to claim your refund isn’t clear. — But the best defense is to set your deductions ahead of time so that you get no refund at all.

Here’s what taxpayers can expect this season:

More identity verification

Yes, this means wider use of those multiple-choice questions about where you lived 30 years ago if you’re filing electronically. It also means “a lot more reactive warnings to users that something has been changed, and making sure it was them that changed it,” said JoAnn Kintzel, chief executive of Tax Act, a tax software firm. “If an e-mail address changes, a message will go both to the new e-mail and the old e-mail.”

Taxpayers will also get a notice if bank deposit information or their home address is changed, said Julie Miller, a spokesperson for tax software company TurboTax, and companies will check to see if more than one account is using the same Social Security number.

Leading tax prep and software companies, as well as payroll and tax financial payment processors, working with states and the IRS, have all agreed to a set of minimum security measures. Companies and states may put in place additional measures, — requiring anyone filing electronically in that state to provide information from a driver’s license or state ID card.

Stronger passwords

Though complex passwords are commonplace on other consumer and bank websites, the tax industry has finally joined the club. The passwords must now include a lowercase letter, an uppercase letter, a symbol, and a number (for example, #H8This). A new timed lockout feature will kick in after repeated failed login attempts.

The IRS launched a consumer education and awareness campaign this past November about security basics. They include not using the same password for multiple accounts, using anti-virus protection, and encrypting sensitive data.

Looser refund timing

There will be less certainty about when taxpayers can expect state refund checks, said Verenda Smith, deputy director of the Federation of Tax Administrators. “In the past, there was a political imperative to get refunds out the door, and that has certainly changed,” she said. “You may have a perfectly fine return, but the state will take just a little longer to confirm that it’s you who is filing it.”

More paper checks

There may also be more refunds that come in paper checks, even for those who request direct deposit. That may prove particularly true for first-time filers, said Smith.

Last year, many fraudsters changed a taxpayer’s preferences in favor of direct deposit to a prepaid debit card account created before filing the false return. So this year, Utah will directly deposit a refund only into a bank account or prepaid debit card issued by a taxpayer’s financial institution. Alabama also changed its policy so that its Department of Revenue can send paper checks to your mailbox even if a taxpayer requested direct deposit, which will be done on a case-by-case basis.

“Prepaid cards are the currency of criminals,” IRS Commissioner John Koskinen told 60 Minutes in 2014. “Our problem is you can’t distinguish the number of a prepaid card from a legitimate bank account.”

Suzanne Woolley WealthWatch
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Year-End Form 1099-MISC

This announcement is meant for all of our self-employed clients (Schedule C), and all of our landlord clients (Schedule E).

There are penalties for not filing form 1099 to the government and to your subcontractors who are not incorporated, regarding your payments to them during the year.  These payments would be for either services performed by them, or repairs and improvements made by them.  Both the IRS and your state accept these filings.

This is our way of making sure that we can answer IN THE AFFIRMATIVE, the question on your tax return that you DID COMPLY with the 1099 filing requirements.  By making this announcement to notify you of the filing requirements, now we can affirm that you did so, within the deadline limits, when we prepare your returns.  This question has been on the forms every year, for both schedules C and E.
Reporting Payments to Independent Contractors:

What is a Form W-9?

Online service for annual 1099 reporting:

Avalara will take care of notifying the government and your subcontractors.

If you do not want to pay Avalara’s fee ($2 per form ?), you can do it yourself by requesting from us the actual forms that you must complete and file, and then mail them yourself, to the government and to your subcontractor(s).  These forms WON’T be in our Tax Organizer packets because they have an earlier due date than your Form 1040.

In the end, you need to make sure that your subcontractors report their proper income to the government. If you haven’t completed the forms yet, let your subcontractors know ASAP that you will be reporting their payments that you made, so they will report and pay their fair share of taxes.

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Twins Born In Different Years Deliver Quirky Tax Result for Parents

Maribel Valencia, 22, and her husband, Luis, became parents in 2015. And again in 2016. Maribel Valencia delivered twin babies at San Diego Kaiser Permanente Zion Medical Center over the weekend but the twins have different birthdays. Jaelyn, a girl, was delivered at 11:59 p.m. on December 31, 2015, while her brother, Luis, was delivered at 12:02 a.m. on January 1, 2016.

The babies were scheduled to be delivered by Cesarean section a week later, on January 6, 2016, but the twins apparently had something else in mind, making a surprise appearance a bit earlier. Fortunately, the babies are healthy: both 18.5 inches long. Jaelyn weighed four pounds, 15 ounces, while Luis weighed five pounds, nine ounces.

The pair has an older sister. But what about their Uncle… Sam? When it comes to tax time, the fact that little Jaclyn and Luis were born minutes apart doesn’t matter. The fact that they are born in different years does matter.

By law, you are allowed one exemption for each person you can claim as a dependent. A dependent can be either “qualifying child” or a “qualifying relative.” To be considered a “qualifying child,” the child must meet the following criteria:

  • The child must be your son, daughter, stepchild, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them;
  • The child must be under age 19 at the end of the year and younger than you (or your spouse, if filing jointly), under age 24 at the end of the year, a student, and younger than you (or your spouse, if filing jointly), or any age if permanently and totally disabled;
  • The child must have lived with you for more than half of the year;
  • The child must not have provided more than half of his or her own support for the year; and
  • The child must not be filing a joint return for the year (unless that return is filed only to get a refund of income tax withheld or estimated tax paid).

Of course, this being tax, there are exceptions and special rules that apply. One of the special rules is that a child who is born (or has died) during the calendar year is still considered to be a qualifying child if he or she meets all of the other criteria.

That means a baby born on December 31, 2015, would be considered a qualifying child for 2015. A baby born on January 1, 2016, would not be considered a qualifying child for 2015: that child would be a qualifying child for 2016.

In other words, assuming all of the other criteria are met, baby Jaelyn would be considered a dependent for 2015 – and little Luis would not. That’s a tough break for the Valencia’s, who, since they both work (according to the hospital, Maribel works as a cashier and Luis is a diesel mechanic for the United State Navy), could likely benefit from the extra exemption in 2015: the amount you can deduct in 2015 is $4,000.


by Kelly Phillips Erb Forbes Staff

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Daily Gambling Log

Technically speaking, an amateur gambler must report the full amount of each and every win on the miscellaneous income line on page 1 of Form 1040.
Use this for your LOG, and enclose it with the rest of your tax info, and Tax Organizer.

Daily Gambling LOG

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How Far Back Can the IRS Audit?


There are two basic statutes of limitation.


First is the statute of limitations, which provides that the IRS has three years to assess an additional tax due.

For example, for a taxpayer who filed a 2012 tax return on April 15, 2013, the IRS has until April 15, 2016, to assess an additional tax.

This rule has two major exceptions. The three-year statute is extended to six years in a case where the taxpayer has omitted more than 25% of gross income.


Second, there is no statute of limitation in cases where no return has been filed, or where the taxpayer has filed a fraudulent return.


These two exceptions permit the IRS to assess an additional tax at any time.

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Year-End Tax Tips for Individuals 2015-2016


BY MICHAEL COHN (Accounting Today)


The National Society of Accountants has released some suggested year-end tax tips for individuals, courtesy of Wolters Kluwer Tax & Accounting US.

Individual income tax rates of 10, 15, 25, 28, 33, 35 and 39.6 percent remain in place for filing next April. (The more you made, the greater your percentage.) The standard deduction for 2016 income will stay the same: $6,300 if you file your taxes using the status single or married filing separately. Married joint filers still receive a $12,600 deduction; head of household filers’ deduction jumps $50, to $9,300.

Year-end tax-saving tactics include spreading recognition of your income between years by postponing year-end bonuses and maximizing both deductible retirement contributions and allowable retirement distributions for this calendar year, coordinating capital losses against the sale of appreciated assets, postponing redemption of U.S. Savings Bonds, and delaying your year-end billings and collections.

You may also want to defer corporate liquidation distributions (full cash-value payment for all a company’s stock you hold) until 2016, pay your last state estimated tax installment in 2015 and pre-pay real estate taxes or mortgage interest.

Life changes: Did you get married or divorced? Have a child? Buy a home? Change jobs or retire? A change in employment, for example, may bring severance pay, sign-on bonuses, stock options, moving expenses and COBRA health benefits, among other changes that affect your taxes.

Additionally, try to predict any life events in 2016 that might trigger significant income or losses, as well as a change in your filing status.

Retirement savings: You can contribute up to $5,500 to an individual retirement account or Roth IRA for 2015 and, if you’re 50 or older, $1,000 more in catch-up contributions. You also have until April 15, 2015, to make an IRA contribution for 2015. One tax move in this area: Delay until 2016 converting your traditional IRA to a Roth IRA, which incurs taxes.

Giving: You can still make tax-free gifts of $14,000 per recipient (a total of $28,000 in the case of married couples).

Tax-free distributions, up to a maximum of $100,000 per taxpayer each year from IRAs to public charities, have been allowed as an alternative to reporting the income and taking an itemized deduction. You must be 70½ or older to do this.

High Earners
If your income is six figures or more, you should anticipate possible liability for the 3.8 percent net investment income (NII) tax calculated on net investment income in excess of your modified adjusted gross income (MAGI). Threshold MAGIs for the NII tax are $250,000 in the case of joint returns or a surviving spouse, $125,000 for a married taxpayer filing a separate return, and $200,000 in any other case.

Keeping income below the thresholds is worth exploring, as is spreading income out over a number of years or offsetting the income with both above-the-line and itemized deductions. Of course, planning for the NII tax requires a very personalized strategy.

The tax rate on net capital gain is no higher than 15 percent for most taxpayers. Net capital gain may not be taxed if you’re in the 10 or 15 percent income tax brackets. A 20 percent rate on net capital gain can apply if your taxable income exceeds the thresholds set for the 39.6 percent rate ($413,200 if you file single, $464,850 for married filing jointly or as a qualifying widow[er], $439,000 for head of household and $232,425 for married filing separately).

Wash sale rules: These cover sales of stock or securities in which your losses are realized but not recognized for tax purposes because you acquire substantially identical stock or securities within 30 days before or after the sale.

Alternative minimum tax: The AMT is now “patched,” which permanently increases the exemption amounts and indexes those amounts for inflation. For 2015, the exemption amounts are $53,600 for single individuals and heads of household, $83,400 for married couples filing a joint return and surviving spouses and $41,700 for married couples filing separate returns.

You can take several steps to reduce the AMT’s effect on your tax liability. Avoid certain deductions, including the accelerated depreciation deduction on real property or expensed research, among others. You might also avoid exercising incentive stock options in a year in which you’re subject to AMT.

Pease limitation: This reduces a higher-income taxpayer’s allowable itemized deductions by 3 percent of the amount (up to 80 percent), with the reduction kicking in after certain income thresholds. For 2015, Pease thresholds are $309,900 for married couples and surviving spouses, $284,050 for heads of households, $258,250 for unmarried taxpayers and $154,950 for married taxpayers filing separately.

Related to the Pease limitation is the personal exemption phase-out (PEP). The threshold income amounts for the PEP are the same as those for the Pease limitation.

Health Insurance
The Affordable Care Act requires that you have minimum essential health coverage or make a shared responsibility payment, unless you’re exempt. On 2014 returns filed in 2015, taxpayers reported if they had minimum essential coverage; that reporting requirement will again be on 2015 returns filed in 2016.

If you may be liable for a shared responsibility payment, carefully review the significant number and variety of exemptions available. You may also be able to project the amount of any payment. Closely related are changes to the medical expense deduction, health flexible spending arrangements (and similar arrangements), insurance coverage for children, and more.

Potential Legislation
As of mid-November, tax bills pending in Congress included a package of tax extenders, revisions to the Affordable Care Act and more. Lawmakers might renew them either before year-end or early in 2016. Incentives include:

Exclusion of cancellation of indebtedness on principal residence: Allows you to exclude from income the cancellation of mortgage debt of up $2 million on a qualified principal residence.

Higher education tuition and fees deduction: Provides a maximum $4,000 deduction for qualified tuition and fees at post-secondary institutions of learning, subject to income phase-outs.

Classroom expense deduction. Primary and secondary education professionals may take an above-the-line deduction for qualified unreimbursed expenses up to $250 paid during the year.

Stay tuned to see which of these and other extenders continue or end. In the meanwhile, planning for their potential renewal is key.


Watch this video for all services offered by Steve Clott.

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Social Security – Navigating The Effective Date Deadlines For The New File-And-Suspend And Restricted Application Rules

Michael Kitces

NOVEMBER 4, 2015


Social Security - new filing strategies

Navigating The Effective Date Deadlines For The New File-And-Suspend And Restricted Application Rules




With last week’s “surprise” legislation that revealed Congress is killing the File-and-Suspend and Restricted Application claiming strategies for maximizing Social Security benefits, even those who weren’t previously aware of the strategies are now wondering whether it’s something to take advantage of before the new rules go into effect.


Fortunately, though, the new rules do not kick in immediately. Those who are already receiving benefits are not impacted at all. And those who are full retirement age – or will reach it in the next 6 months – will still have the opportunity to file-and-suspend before the crackdown takes effect after April 29, 2016. Furthermore, anyone who was born in 1953 or earlier (or January 1st of 1954) will still be able to do a Restricted Application for spousal (or divorced ex-spouse) benefits, even if the filing doesn’t occur until years from now.


Nonetheless, the next 6 months do mark an important transition period that merits a close look at Social Security claiming strategies, for the brief time window that all of the tools remain on the table, whether it’s an individual filing and suspending for a potential lump sum reinstatement in the future, a couple claiming spousal benefits, or a family claiming dependent or disabled child benefits while delaying individual retirement benefits until age 70. And for those “lucky” enough to be born in 1953 or earlier, only a few years remain to consider a Restricted Application, before that deadline ends, too!


(Michael’s Note: This article was updated on November 5th at 8:37PM with updated details about the exact effective dates/deadlines and relevant birth-date requirements for file-and-suspend and restricted application.)


The Near-Term Expiration Of The File and Suspend Strategy For Married Couples




The original version of File-And-Suspend allowed someone, upon reaching full retirement age, to file for Social Security retirement benefits, and then immediately suspend them. The fact that benefits had been filed for meant a spouse became eligible for spousal benefits (as spousal benefits cannot be claimed until the primary worker also files for benefits). However, the fact that benefits of the primary worker were subsequently suspended – and therefore were not actually received – meant that the original filer could still earn delayed retirement credit increases of 8%/year for waiting.


Example 1. John and Mary are both age 66, and have been married for 40 years, in a household where John was the primary breadwinner and Mary never worked outside the household. John is eligible for a retirement benefit of $2,000/month at his full retirement age, and Mary at her full retirement age will have no retirement benefit of her own, but will be eligible for a spousal benefit of $1,000/month, equal to 50% of John’s full benefit.


John wants to delay his benefits until age 70, increasing his benefit by 4 years x 8%/year of delayed retirement credits to $2,640/year (plus subsequent cost-of-living adjustments). Doing so not only boosts his own benefit, but increases the size of John’s survivor benefit that would be payable to Mary if John dies first.


However, waiting until John turns 70 means that Mary won’t receive any of her $1,000/month spousal benefits until then either, since Mary cannot get spousal benefits until John actually files for his own. And since there are no delayed retirement credits for spousal benefits, the extra 4 years of waiting just means Mary permanently loses those 4 years of $1,000/month benefits with no benefit in return!


To resolve this issue, John would File-and-Suspend upon becoming eligible at his full retirement age of 66. By doing so, Mary becomes eligible to claim her own $1,000/month spousal benefit (which she can receive in full, since she too is age 66), accumulating 4 years’ worth of spousal benefits she otherwise wouldn’t have received. (If Mary had been younger, she could have also claimed, but her spousal benefits would be reduced for starting early.) And John still gets the 8%/year delayed retirement credit increases for delaying his own benefits until age 70.


The fundamental point – with File-and-Suspend, John could allow Mary to get her spousal benefits, while still delaying his own benefits to earn the 8%/year delayed retirement credits.




Under the new rules in Section 831 of the Bipartisan Budget Act of 2015, when John suspends his benefits, he will suspend not only his own benefits, but any/all benefits payable to other individuals based on his earnings record. And since Mary’s spousal benefits are 50% of John’s benefits – and therefore are based on his earnings – then the entire File-and-Suspend strategy is effectively dead.


Now, if John were to file-and-suspend, he will suspend his benefits and Mary’s benefits, so no one gets any benefits. Which means if John wants to delay his benefits to earn delayed retirement credits, Mary will have to wait on claiming her spousal benefits, too.




Under the final version of the Bipartisan Budget Act of 2015, the new limitations on File-And-Suspend will apply to anyone who requests a suspension of benefits more than 180 days after the effective date of the legislation. With the law being passed November 2nd of 2015, that means new suspensions occurring on April 30th of 2016 will be subject to the new more restrictive rules (so file-and-suspend must occur on/by April 29th of 2016 to be grandfathered).


Accordingly, if John has already filed and suspended to give Mary access to benefits, the new legislation has no effect. There will be no adverse impact applied retroactively, as while there was an issue with retroactive enforcement in the original legislation, this was resolved with a subsequent amendment before the law was passed.


If John hadn’t yet reached full retirement age of 66, but would reach it between now and April 29th (i.e., he is already at least 65 ½, with a birthday of April 30 1950 or earlier, such that he will attain the age of 66 on April 29th of 1950 or earlier), he would still be able to file-and-suspend in that time window to give Mary access to spousal benefits while delaying his own.


However, if John is younger than 65 ½ now – such that he isn’t age 66 and won’t be by April 29 – he will not be able to use the file-and-suspend strategy at all, as the request to suspend benefits starting next April 30th will suspend Mary’s benefits as well, defeating the entire point of the file-and-suspend strategy.


Notably, if John had planned to just outright file for his benefits and get them, he can still do so, regardless of these new rules. The changes only impact the strategy of having John file to give Mary access to spousal benefits and then suspend his own. If he wants to file-and-get benefits (rather than file-and-suspend them), he can do so under the existing standard rules for Social Security.




While the primary function of the file-and-suspend strategy was to allow a spouse to apply for spousal benefits while the primary worker delayed his/her own retirement benefits, a secondary version of the strategy was relevant for individuals.


Specifically, the opportunity was that at full retirement age, an individual who planned to delay benefits until full retirement age anyway could choose to file-and-suspend. While doing so would earn the same delayed retirement credits that were available by just delaying outright, the fact that the individual filed-and-suspended meant that if he/she had a change of mind later, it was possible to retroactively claim all benefits going back to the date of the original suspension.


Example 2. Jeremy is an individual who plans to delay benefits until age 70. However, just in case, he chooses to file-and-suspend upon reaching his full retirement age of 66.


If Jeremy has no change in circumstances, he will receive benefits at age 70, with the same 8%/year x 4 years = 32% increase for delayed retirement credits he would have received otherwise.


However, if Jeremy finds out he has a terminal illness at age 69, such that delaying benefits will no longer be beneficial, he can request a retroactive payment of his benefits going back to age 66. This allows him to be paid retroactively in a single lump sum for the 3 years of benefits he previously suspended.


Notably, the normal rules for “retroactive benefits” don’t allow this; it’s only possible to file a retroactive claim going back 6 months. However, under the Social Security Administration’s operations manual guidance (POMS GN 02409.130) regarding a voluntary suspension of benefits, those who had suspended payments had the option to reinstate them for the current month, a future month, or any past month during the suspension period.


Thus, as illustrated above, Jeremy can effectively get a lump sum payment of prior benefits, not by claiming “retroactive benefits” but instead by requesting a reinstatement of benefits back to the original file-and-suspend date. (Of course, doing so also meant the retiree would be treated as having claimed at the earlier date in the first place, forfeiting any delayed retirement credits, so this was generally only appealing if there was a change of health that meant the retiree didn’t expect to live long enough to reach the Social Security breakeven period for delaying benefits in the first place.)


What changed under the new rules, however, was that the Bipartisan Budget Act of 2015created a new Social Security Act section 202(z), which defines the rules for how voluntary suspension will work in the future (including “unsuspension” or resumption of benefits). And the new rules stipulate under 202(z)(1)(A)(ii) that suspended benefits can only be resumed in the next subsequent month after the request is made, or at age 70. In other words, the new rules don’t have the option to reinstate going back to a prior month, which effectively means the optional-lump-sum-reinstatement strategy is dead.


Of course, since the new rules for suspension of benefits only apply to requests for suspension after the effective date, anyone who has already requested a suspension of benefits, or who does so in the next 6 months (if you reach full retirement age of 66 within the next 6 months!), remains eligible for the strategy. Even if the request to resume occurs years from now, as long as the original suspension occurred prior to the effective date of the legislation (by April 29 of 2016), the opportunity remains. Any suspension that begins after the effective date, though, will not be eligible for a subsequent retroactive reinstatement.


On the other hand, it’s also noting that because the reinstatement of benefits backdated to a prior month only exists because the Social Security Administration currently allows it in the Operations Manual, there also remains a possibility that the SSA will change its own manual shut down the strategy, even for those who have already filed and suspended, in a similar manner to the crackdown that occurred on the withdraw-and-reapply Social Security strategy back in 2010.


Of course, for those who were going to delay either way, there is little harm to file-and-suspend within the next 6 months just in case it turns out to be relevant in the future (though doing so will trigger enrollment in Medicare, and the end of eligibility to participate in a Health Savings Account). But be cognizant the availability of this reinstatement rule in the future is not unequivocally guaranteed, even for those who have filed-and-suspended before the effective date of the new legislation.


The End Of “Claim Now, Claim More Later” Restricted Application Strategies For Dual-Income Married Couples




While the role of file-and-suspend was to allow someone else to get spousal benefits while the primary worker delayed his/her own benefit, the purpose of restricted application was for someone to get their own spousal benefit while delaying their own individual retirement benefit.


Example 3. Continuing the earlier Example 1 of file-and-suspend, imagine instead that Mary did spend some years working outside of the home, generating her own retirement benefit of $1,100/month. And because there’s limited benefit for both spouses to delay, Mary decides to start her own benefits now at $1,100/month, while John continues to delay.


The planning opportunity here is that John can file a Restricted Application to receive just his spousal benefit, and delay his own individual retirement benefit. This would allow John to receive his $550/month (which is 50% of Mary’s benefit) in spousal benefits for the next 4 years, and then switch to his own individual retirement benefit later. And since he doesn’t get any of his own individual retirement benefits along the way, they still earn an 8%/year delayed retirement benefit increase for 4 years, so when John switches back to his own benefit at age 70, it will have been boosted by 32% to $2,640 (plus subsequent cost-of-living adjustments).


Thus, while file-and-suspend was about allowing Mary to get a spousal benefit while John delaying his retirement benefit, restricted application is about John getting his own spousal benefit while delaying his own retirement benefit (and presuming that Mary is already getting her benefits as well).


A related Restricted Application strategy would even combine the two approaches.


Example 4. Continuing the prior example, instead of having Mary file for benefits and John file a restricted application for $550/month, John could file-and-suspend and let Mary get 50% of his benefit. Of course, there’s not much reason for Mary to claim a $1,000/month spousal benefit when she’s already eligible for a $1,100/month retirement benefit of her own, since upon filing for both benefits Mary will only receive whichever is higher, not both.


However, if John files-and-suspends, Mary can file a restricted application herself, receiving the $1,000/month spousal benefit from John while delaying her own. This way, Mary can delay her own benefit to earn the maximum 32% increase for delaying – pushing her $1,100/month benefit up to $1,452/month – and also get $1,000/month along the way until she switches back to her own benefit. And because John filed-and-suspended, he will get 32% of cumulative delayed retirement credits on his benefit, too.


Ultimately, which of these strategies is superior – having John file a restricted application, or having John file-and-suspend so Mary can file a restricted application – will depend on how long each of them lives. Nonetheless, the fundamental point of Restricted Application was/is to allow one spouse to claim spousal benefits while simultaneously delaying his/her own individual retirement benefits.


On the other hand, it’s also worth noting that because a Restricted Application is all about claiming a spousal benefit based on the other person’s retirement benefit, while also delaying your own retirement benefit, it’s only relevant for dual-income couples who each had enough in earnings to be eligible for a Social Security retirement benefit in the first place. For a single-income household, a Restricted Application is not relevant, only File-and-Suspend.




Under the new Section 831 rules of the Bipartisan Budget Act of 2015, when either John or Mary files for benefits, they are deemed to file for both individual and spousal benefits. And under the standard rules for Social Security benefits, anytime someone applies for multiple benefits they simply receive whichever provides the biggest benefit check (i.e., the larger benefit simply overwrites the smaller one).


In other words, there will no longer be such thing as applying for just one benefit and switching to the other later. Instead, for better or worse, either all benefits start earlier, or all are delayed later.




In the case of Restricted Application, the effective date for the new rules is a bit different.


For those who turn age 62 or older this year – in essence, those born in 1953 or earlier, or someone born on January 1st of 1954 who technically “attains” age 62 as of December 31 of 2015 under POMS GN 00302.400 – Restricted Application is grandfathered under the current rules. Which means if you’re already receiving a spousal benefit under restricted application, you can continue to do so. And if you’re not receiving a spousal benefit yet, but planned to file a restricted application for it in the future, you can still do so – even if your filing for restricted benefits wouldn’t have happened until as late as 2019 when today’s 62-year-olds finally reach full retirement age.


On the other hand, for those who are under age 62 this year – i.e., born January 2nd of 1954 or later – there will simply no longer be any opportunity for doing a Restricted Application, now or in the future. Instead, a spouse eligible for spousal benefits will be required to file for all benefits, or wait on all benefits.


Notably, though, the entire question of filing a restricted application for spousal benefits is a moot point until the other member of the couple has already filed for benefits. In the next 6 months, that other member of the couple could file-and-suspend for benefits to activate the spousal benefits; beyond that point, while a restricted application may be possible, it can only occur if the other member of the couple files-and-gets benefits.


Impact of the New Rules On Divorced/Ex-Spouse Benefits To “Claim Now, Claim More Later”


In the case of a divorced spouse, file-and-suspend was not relevant, since the divorced spouse is eligible for a full spousal benefit at full retirement as long as his/her ex-spouse is at least age 62 (regardless of whether that person has filed for benefits).


However, filing a restricted application to obtain the ex-spouse spousal benefits while delaying individual benefits was an effective strategy to maximize retirement benefits while obtaining some (ex-spouse) benefits along the way.


This version of the “claim now, claim more later” strategy remains available under the new rules, but only for those born in 1953 or earlier (or on January 1st of 1954) who are grandfathered under the budget legislation. Thus, for those who are already claiming ex-spouse spousal benefits, or were born on January 1st of 1954 or an earlier year and planned to claim ex-spouse spousal benefits in the future, the option to claim spousal at full retirement age and delay retirement benefits until later remains available.


For those born on January 2 of 1954, or later, there will no longer be any option to delay individual retirement benefits while claiming an ex-spouse’s spousal benefit. Instead, a divorcee must either claim all benefits (both spousal and retirement) and receive whichever is higher, or wait to increase the individual retirement benefit and claim none until then. The claim-one-and-switch strategy will no longer be available.




One significant caveat and complicating factor of the new rules is that while file-and-suspend was not normally relevant in divorced spouse situations, the new crackdown on suspended benefits may have unwittingly made it relevant.


The issue is that under the new Social Security Act section 202(z)(3)(B), when someone suspends a benefit “no monthly benefit shall be payable to any other individual on the basis of the [worker’s] wages and self-employment income.” This is the provision that eliminated the traditional form of file-and-suspend, by stipulating that when one person in a couple suspends benefits, the spousal benefit based on his/her record will also be suspended.


However, the reality is that an ex-spouse’s spousal benefit is also a benefit paid on the basis of the primary worker spouse’s earnings record. Which means while the reality is that while a divorced spouse didn’t need the other spouse to file for benefits to be eligible, a former spouse who suspends could potentially cause the divorced ex-spouse to lose access to benefits as well.


Example 5. Charlie and Betsy are divorced, after having been married for 10 years, and are currently unmarried. As long as Charlie is at least age 62, Betsy is able to file for an ex-spouse’s spousal benefit at her appropriate age, which wasn’t changed under any of the new rules of the budget legislation.


However, under the new rules, if Charlie plans to delay benefits until age 70 anyway, he could go into the Social Security Administration at age 66 (after the effective date of the new legislation), and file-and-suspend just to be vindictive and prevent Betsy from getting her ex-spouse’s benefits. After all, the new rules stipulate – as quoted above – that once effective, when Charlie suspends, “no monthly benefits shall be payable to any other individual [such as an ex-spouse] on the basis of [Charlie’s] wages and self-employment income.” In other words, while Charlie doesn’t have to file to give Mary benefits, Charlie’s suspension may potentially suspend his ex-wife’s benefits.


This was almost certainly not an intended outcome of the legislation, and may be within the Social Security Administration’s control to be fixed. If not, though, it may require subsequent legislation from Congress to further amend the Social Security Act to prevent this undesirable outcome. Either way, it will not matter until the new rules take effect after April 29 of 2016, so there is at least a 6-month period for the issue to be resolved.


The (Non-)Impact of the New Rules On Survivor Benefits (Including Divorcee Survivors)


When one member of a married couple passes away, the survivor is eligible for a survivor’s benefit (also known as a widow or widower’s benefit), equal to 100% of the decease spouse’s benefit. The rule also applies to a divorcee whose former spouse has passed away, as long as the couple was married for at least 10 years, and the divorcee remained unmarried until age 60.


As with any/all Social Security benefits, in the event that a surviving spouse claims multiple benefits – such as a widow’s benefit and his/her own individual retirement benefits – only the higher of the two is paid, not the cumulative total of both.


However, surviving spouses have a choice about when to claim each – the widow’s benefit and his/her own individual retirement benefit – and the new budget legislation does not change these rules.


As a result, a surviving spouse still has the flexibility to choose whether to begin widow’s benefits as early as age 60 or as late as full retirement age (at age 66), and also can choose whether to start his/her own retirement benefits as early as age 62 or as late as age 70. In both cases, starting earlier than full retirement age results in a reduced benefit, and with retirement benefits delaying past full retirement age still earns delayed retirement credits. But either way, the surviving spouse can choose independently when to start one and then the other.


Start-Stop-Start And File-And-Suspend For Parents With Dependent Or Disabled Children


When someone claims individual Social Security retirement benefits, an additional payment of 50% of his/her Primary Insurance Amount is also payable for each dependent child in the household (including biological and legally adopted children, as long as the child is unmarried and under the age of 18). The rules also apply to disabled children with no upper age limit, as long as the disability started before the age of 22. Furthermore, an “early” spouse’s benefit is also available to a spouse under age 62, if he/she is a parent caring for a disabled child (of any age) or a young child under the age of 16. These payments collectively are subject to a maximum family benefit, which varies between 150% and 180% of the primary worker’s full retirement benefit.


Because these dependent and disabled child benefits apply only once an individual has actually filed for benefits, the claiming of such benefits was eligible for the file-and-suspend rules. Thus, someone at full retirement age could file-and-suspend to activate dependent and disabled child benefits (in addition to spousal benefits), while delaying his/her own benefits to age 70 to earn delayed retirement credits.


Given the crackdown on file-and-suspend, though, only parents who are at least 65 ½ by November 1st (such that they reach full retirement age of 66 by the end of next April) will be able to pursue this file-and-suspend strategy at their full retirement age (but must file after full retirement age and before the new rules take effect!).


For younger parents who won’t be full retirement age until after the effective date, the only option will be to either start all benefits – including both retirement, spousal, and dependent/disabled child – or delay all benefits.


On the other hand, since the rules for voluntary suspension of benefits at full retirement age remains in effect, the option remains to engage in the “Start, Stop, Start” approach, where a parent starts Social Security benefits early to claim the full family benefits (including dependent/disabled child benefits), and then suspends benefits at full retirement age. Doing so will fully suspend all family benefits beyond the effective date of the legislation, but if the children are old enough to be over age 18 by then, it may still be appealing to claim full family benefits for a period of time (starting at age 62), then stop benefits to earn delayed retirement credits at 66, and then resume just the increased retirement benefit (and also the spousal benefit if available) at age 70.


A 6-Month Transition Period Until The File-And-Suspend Effective Date Deadline


Ultimately, the fact that the Bipartisan Budget Act of 2015 left a 6-month “transition period” for file-and-suspend means any/all couples who have a member that either already reached full retirement age, or will in the next 6 months, needs to carefully evaluate whether a file-and-suspend strategy makes sense or not. Because once the time window has passed, any subsequent voluntary suspension will be subject to the far-less-favorable new rules.


For those who are at least 65 ½ but were born in 1953 or earlier (or on January 1st of 1954!), the window for filing a restricted application for spousal benefits (including a divorced ex-spousal benefit) remains available for a few more years, though the ability to coordinate that strategy with file-and-suspend will still be over in 6 months.


And for everyone else in the long-term future, coordinating the benefits planning of a couple will remain relevant… but unfortunately, with far fewer tools in the strategy toolbox to maximize those benefits!
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