Most people are used to having a portion of their paycheck withheld for Social Security during their working years. But not everyone realizes that their retirement benefits could still be subject to income taxes—especially if you’re collecting benefits while working full- or part-time.
Since taxes may be one of your biggest expenses in retirement, let’s take a minute to consider whether or not they can impact your future benefits.
The good news is that the Internal Revenue Service (IRS) current rules won’t tax more than 85% of your Social Security benefits. If you’re an individual filer earning more than $34,000 in combined income, 85% may be subject to taxes. If you’re earning between $25,000 and $34,000, the taxable amount reduces to 50%.1
For married couples filing jointly, a combined income greater than $44,000 will mean that 85% of your benefits may be subject to taxes. If you earn between $32,000 and $44,000, it’s again reduced to 50%.1
This “combined income” we mentioned above refers to a specific formula developed by the IRS:1
Your adjusted gross income + nontaxable interest + half of your Social Security benefits = Your combined income.
Knowing this formula is helpful as it tells us how the IRS views various types of income. For example, delaying payments until you’ve left your full-time job may be an effective way to help manage your potential tax obligation.
Remember, this article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax or accounting professional if you have questions about whether your Social Security benefit will be taxed.
One of our top priorities is to help you feel confident and prepared for retirement. If you’d like to discuss your retirement income strategy, please feel free to reach out.
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September 27, 2022