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Late last month Congress passed the Bipartisan Budget Act of 2015 (the Act) which provided the funding the government needed to avoid a shutdown.  Part of that bill, however, closed two prominent “loopholes” in social security benefits that will require some individuals in or near retirement to act fast or risk forfeiting a substantial amount of benefits.

The first and more prominent loophole eliminated was the File and Suspend Method.  This method allows a lower-earning spouse to claim benefits based on the higher earning spouse’s earning record (i.e. spousal benefits) even though that spouse is not currently receiving any benefits.  Since spousal benefits can be as much as one-half of the higher-earning spouse’s benefits, they are typically more than the benefits based on that lower-earnings spouse’s records. This method works by having the higher-earning spouse claim benefits at full retirement age (currently age 66), but then immediately suspend taking those benefits until a later date (at age 70 or earlier).  Since suspending the benefits allows you to increase your benefits by 8% each year, the file and suspend method allows both spouses to receive maximum benefits.

As a result of the Act, after April 30, 2016 an individual can only receive benefits based on the higher-earning spouse’s earnings records if that spouse is actually receiving benefits.  Fortunately, those individuals who have already been using the file and suspend method are not affected as they are grandfathered under the Act.  However, those higher-earning spouses that will be at their full retirement age or are past their full retirement age must act by April 30, 2016 to take advantage of this method.

The second loophole closed by the Act is the elimination of the Restricted Application Method (also known as the Claim Some Now, Claim More Later Method).  This method allows lower-earning spouses eligible for both spousal benefits and retirement benefits (based on own earnings) to claim spousal benefits at full retirement age, but delay taking benefits under his or her earnings record until a later date (at age 70 or earlier).  By suspending the benefits, the lower-earning spouse can receive spousal benefits while still allowing his or her own retirement benefit to earn delayed credits until as late as age 70. At that time, the spouse can then switch over to their own higher benefit.

For those individuals who turn 62 after 2015, the Act eliminates the ability to file a restricted application for only spousal benefits.  Those individuals who are age 62 or older in 2015, however, should still be able to use this method. Spouses who are already collecting benefits on their partners earnings record can also continue to do so and switch to their own larger retirement benefit at a later date —up to age 70. Kathi Iott is a partner in the tax services area of the firm with over 15 years of public accounting experience. Learn more about Kathi's expertise.