Dear Rusty >> If we take our social security at our full retirement age (66 years and 6 months for both of us) and we both continue to work, what are the tax consequences? Is there an age at which we can still work and receive Social Security without tax consequences on our benefits? — Surcharged couple
Dear Overtaxed Couple >> Regardless of when you claim your Social Security benefits, whether those benefits are subject to federal income tax depends entirely on your earnings as reported to the IRS. This is true even if you collect Social Security benefits after reaching full retirement age—there is no age at which SS benefits become exempt from federal income tax. Here’s how it works:
The taxation of your Social Security benefits depends on two things: first, the amount of your combined income from all sources (known as Modified Adjusted Gross Income or “MAGI”), and second, your tax filing status. income tax (whether you file your tax return individually or jointly as a married couple). Your “MAGI” consists of your adjusted gross income (AGI) on your tax return, plus half of your Social Security benefits received for the tax year, plus any other non-taxable income you may have had.
If your MAGI for the tax year exceeds certain thresholds, some of your Social Security benefits are taxable regardless of your normal IRS tax rate. If, as a couple, you file your income taxes as a “married-joint return” and your MAGI is over $32,000, then 50% of your Social Security benefits received during the year taxes are part of your overall taxable income regardless of the tax rate. is standard for your income. But if your MAGI as a couple for the tax year exceeds $44,000, up to 85% of your SS benefits are part of your overall taxable income. If your MAGI as a married couple is less than $32,000, your Social Security benefits are not taxable.
For those filing federal income tax as a single person, the thresholds are lower. If your MAGI as a single filer is $25,000 or less, your Social Security benefits are not taxable. However, if your MAGI as a single filer is more than $25,000, half of your Social Security benefits received during the tax year are part of your overall taxable income, and if your MAGI as single filer is over $34,000, then up to 85% of your benefits for the tax year become part of your taxable income. But a word of warning for those who are married but choose to file their taxes “married – filing separately”: if you file separately and live together at any time during the tax year, the tax threshold for the benefits of social security is zero.
Thus, the federal taxation of your Social Security benefits depends entirely on your combined income from all sources and your tax filing status. Your age does not matter at all, even if you receive social security benefits after full retirement age.
Be aware, however, that a dozen US states levy income tax on Social Security benefits. You should therefore check the tax laws of your state of residence to see if some or all of your social security benefits will be taxed by the state in which you live. .
Russell Gloor is a Certified Social Security Advisor by the Association of Mature American Citizens: https://amac.us/social-security-advisor.