I am writing this article today because I want to let you know that there is a Social Security Program that you may not be aware of and it could get you a lot of benefits. There are not many people who know that if they are age 62 or older and have children under the age of 18 their children are eligible to receive social security payments, based on their earnings history. Before we begin, let me share a very interesting story with you. Few days back, I met with a retired person and he told me that he is 63 years old and was receiving his pension and just turned on his Social Security benefit. But he informed me that not only was he receiving Social Security payments for himself, but also receiving about $700 each of his three minor children.
To be very honest, I never heard of this before and then I actually did some research and found it to be true. Actually, Social Security has dependent benefits available for people that are 62 or older. So, in this article, I will try to enlighten about this very crucial but not widely known topic.
Requirements to Qualify for this Benefit
There are mainly following three requirements that would make your children eligible to receive these dependent benefits from Social Security based on your retirement benefit:
- The parent has to be at least 62 years of age or older.
- The parent has to have physically turned on their Social Security benefits. It is not like that you can just wait until normal retirement age and your children start receiving these payments. You actually have to be receiving those payments yourself in order for your children to qualify for these benefits.
- Your child has to be unmarried, has to be under the age of 18, or between the ages of 18 and 19 and still be a full-time student K through twelve, or age 18 or older with a disability that began before age 22.
To clarify further, we assume that you and your children meet all above three requirements and you are considering turning on your Social Security benefits at age 62. It may be added here that your full retirement age, when you are entitled to your full Social Security benefit if you were born 1960 or later and are age 67 right now. And if you take it early, let’s say at 62, Social Security Administration will reduce permanently your Social Security benefit for the rest of your life by small amounts each year. And if you take it at 62, it’s about 70% of the full benefit you are entitled to.
How much benefits will your children receive?
It is pertinent to mention here that the amount of the benefits that your children are able to receive from Social Security under these dependent benefits can be substantial because they are eligible to receive up to 50% of your full retirement age benefit. Each of your children are eligible to receive 50% of your full retirement age benefit. So again, let’s say your full retirement age benefit at 67 would have been $1,700, but by you turning on at 62, let’s say you only get $1,200, but then that opens a door for your minor children to receive payments. Their 50% is not based on your 200 but their 50% is based on your $700 that you would have received at forward retirement aids.
So, you would receive one $200, and each of your minor children could receive $850 per month until they reach age 18. It is worth mentioning here that these $850 payments to your children continue until the month of their 18th birthday. For instance, if you have a twelve-year-old child and he is going to see this $850 per month every single month, that’s a number of years that they are going to receive roughly $10,200 a year until those payments stop. And that money could be used for purchasing different things, like a first car, college expenses, down payment for your first house etc.
Family Maximum Benefit Threshold
There is a family maximum benefit threshold, which means if you have ten children, you are probably going to bump into this family maximum benefit, which says your dependents can only collect up to 150% of your full retirement age benefit for Social Security. Let’s say your benefit at full retirement age is $2,000 then they are going to cap $3,000 is the most that all of your dependents can receive based on this dependent benefit. Now, are your children going to have to pay tax on these Social Security benefit payments received by them? They are considered payments directly to the children and it’s considered their taxable income. Social Security is taxed at the federal level above a certain threshold, and what that threshold is about $25,000. And this is how the calculation works.
You total up all your children’s taxable and non-taxable income. Let’s say they have two jobs, those count 100% and then you take 50% of the benefits that they receive from Social Security and add that to the calculation. If their total income plus 50% of their Social Security benefit is under $25,000, they will not have to pay any federal tax on the benefits that they received. In case they go above that, then they may owe some tax on a portion of that Social Security benefit that is at the Federal Level. States have their own rules when it comes to the taxation of Social Security. Many states do not have any taxation at the state level on Social Security benefits. But there is about 13 states that actually tax Social Security in one form of another. So, you just have to look into it and see if there’s going to be state tax owed on these benefits paid to your children.
What if your children are receiving all of this Income from Social Security?
Another natural tax question that comes up is, if your children are receiving all this income from Social Security, can you still claim them as a dependent on your personal tax return? And as long as your children still meet the definition of dependent, the answer is yes, they can both get the Social Security payments and you can claim them as a dependent.
How to apply for Social Security Payments for your Children?
You can apply for dependent benefits online, or have to call Social Security or schedule an appointment at your local Social Security office. There is one big pitfall that families can run into with this filing strategy, that if your children are receiving these Social Security benefits and you are saving them for college or something in the future when they turn 18, you may get a letter from Social Security saying, if you conserved or saved any of these benefits that were paid to your child, we want them back. Now, there is a workaround for this, but before I tell you that, let’s first talk about why they ask for the money back. So, the premise behind why they give these dependent benefits is they assume, if someone retired at 62 and their income dropped and they still have minor children, they may need additional income to help subsidize the expenses until the kids have reached age of majority. And if you have not spent it, then we want that money back.
Now, regardless of your income situation, it does not preclude you from applying and receiving these benefits. But you have to know how to title the account that these benefits are being deposited to. The titling of the account is very important here. So, all these Social Security benefits that are coming on behalf of your children, if they are being deposited to account that you own or that you co own, you are a joint owner with you and your child, they can legitimately ask for those saved benefits back. But if the account is solely in the name of your child, you do not have to refund those save benefits to Social Security.
How to establish accounts to your child’s name?
There are a few ways to establish accounts just in the name of the child. So, some banks at, let’s say, 14 will set up a savings account in the name of the child, and then the parent is just added as a custodian child owns it 100%. But the parent just oversees it until they reach age of majority for the state, which may be 18, and then they have full control over the account. The other is something called an UTM account. In this account, the child again owns 100%. Parents add it as custodian and they own that account, 100% have full control, age of majority. That’s another way. The misstep you got to watch out for is sometimes parents will set out five to nine accounts, college savings accounts. They’ll say, well, I’m getting the Social Security payments. I am going to put in the five to nine, get potentially the state tax deduction, get the tax free accumulation.
It’s natural because they want to use this money for college. But the problem is a lot of five to nine accounts, even though the child is listed as a beneficiary, the parent is technically the owner of that account, which then would make it subject to that refund requirement. You can establish five, two nine accounts as UTM accounts, and that may be the safer way to go, saying, this is now actually owned by the child for the child, so it may not be subject to that Social Security refund. While we are on this subject to college, it’s also important to know that these assets in the child’s name can negatively impact the FAFSA calculation, financial aid for college because technically, any asset that is in the name of the child, when you file the FAFSA application, that balance counts 20% against whatever financial aid award that they would receive. So, they have $100,000 sitting in their account. $20,000 per year would count against their financial aid award, which is not great, but it’s not the end of the world, because when you think about it, that 100,000, if you received it all from Social Security, was money you never had.
So yes, 20,000 is counting against by that other $80,000 in the account. You would have never had to bring this all-full circle. If you are 62 and have minor children, it very well could make sense to turn on your Social Security benefit early. But you have to be aware of the other elements of Social Security filing, which is the survivor benefits to your spouse, the permanent reduction, the earned income penalty. If you are still working, you have to look at all of these things before you just blindly pull the trigger and turn on your benefit at age 62.
Conclusion
Today’s article is very important for the people who are 62 years old and have children under 18. They could be eligible to claim Social Security benefits in this category. So, carefully read this article to see if you or your children are eligible for these benefits.
I hope you find this article helpful and if you have any questions, please leave the same in the comment box. Thanks for reading.
FAQs
Q. Can you claim Social Security Benefits for your children Under 18, if you are 62 years old?
A. Yes. If your children are younger than 18 years of age and you have turned 62, they could be eligible to receive Social Security benefits.
Q. Can they receive these benefits even if they married?
A. If they are married, even they meet other requirements they could not get these benefits.
Q. Is your child eligible if you are not receiving your Social Security Benefits?
A. No. you actually have to be receiving those payments yourself in order for your children to qualify for these benefits.