Dear Liz: My partner of 30 years recently died. Am I eligible for Social Security survivor benefits? I don't want anything I don't deserve, but if I'm entitled to something, every penny would be appreciated. I am 54 and make minimum wage.
Answer: Your eligibility for Social Security benefits as a spouse depends on three factors: whether your state recognizes same-sex marriages, whether it did so on the date your partner died and whether you were legally married. (You wrote "partner" rather than "spouse," which suggests you may not have been.)
The Supreme Court paved the way for Social Security to offer same-sex benefits when it ruled parts of the federal Defense of Marriage Act unconstitutional last summer. Social Security has taken the position that it must follow state law in recognizing same-sex marriages and that what matters is where the couple live, not where they married. Even in states where same-sex marriage is currently legal, Social Security denies survivor benefits if it wasn't legal when the spouse died.
If you are eligible, you can start receiving benefits as early as age 60. (Survivor benefits are available at any age if the widow or widower takes care of a child receiving Social Security benefits who is younger than 16 or disabled.)
Starting early reduces your survivor benefit significantly compared with what you would get if you wait until your full retirement age of 67. As a survivor, though, you're allowed to switch to your own benefit later, if that benefit is larger. (That's different from spousal benefits, where spouses are precluded from switching to their own benefits if they start getting Social Security checks before their own full retirement age.) If your survivor benefit is likely to be larger than any benefit you've earned on your own, though, it typically makes sense to delay starting Social Security as long as possible to maximize what you'll get.
Student loan forgiveness leaves big tax bill
Dear Liz: You recently wrote about student loan forgiveness. After 15 years as a public defender, my wife was diagnosed with multiple sclerosis and could no longer pursue her career as a lawyer. She applied for forgiveness of the federal student loans she used to attend law school. About three years later, the loans were forgiven. The caveat is that she was required to pay income taxes based on the balance that was erased. The taxes amounted to $63,000. Getting the loan forgiven was easy compared with coughing up the money for the IRS. I thought this should be mentioned.
Answer: The IRS generally considers forgiven or canceled debt as income to the borrower. There are several exceptions, however.
Borrowers don't have to pay income taxes on student loans forgiven through programs that require them to work for a specific number of years in a certain profession. So public service loan forgiveness, law school repayment assistance, teacher loan forgiveness and the National Health Service Corps' loan repayment program won't trigger taxes. Forgiven debt also may be excluded from income if the borrower was insolvent at the time.
Student loan discharges for death, disability, closed schools, false certification and unpaid refunds typically are considered taxable income, however. Forgiveness of remaining balances under income-based repayment programs after 20 or 25 years of payment is also considered taxable.
The taxes owed will be a percentage of the amount forgiven, based on your tax bracket. If you're in the 25% federal bracket, for example, you'd pay $25,000 for $100,000 of forgiven debt, plus any state and local income taxes. It's less than the tab you owed, of course, but as you note it can still be a tough bill to pay.
Don't be too judgmental about bankruptcy
Dear Liz: Someone recently asked you about whether they were responsible for their mother's credit card debt, and at the end of your answer you suggested she talk to a bankruptcy attorney. How can you promote that kind of irresponsibility?
Answer: Some people are quite firm in their belief that bankruptcy should never be an option — even for elderly widows on fixed incomes with no hope of ever paying off their debts. But if enough things go wrong in their lives, these anti-bankruptcy folks might find themselves grateful that there's a legal way out of the debtors' prison that their lives would become.