Taxes are always a hot topic and especially for those in retirement. If you’re working in retirement, you may have found yourself asking this question as well: Must I pay Social Security taxes on earnings after I reach Full Retirement Age?
There are two parts to this question as I understand it: Social Security withholdings on earned income and taxation of Social Security benefits.
Social Security Taxes on Earnings After Full Retirement Age
As is the case with most things in life, it depends. In this case, it depends on which question you’re asking. For completeness, I’ll cover both.
If you’re still working, whether in a self-employed capacity or for an employer, then the answer is a very simple ‘yes’. As long as you are working and earning an income, then you’ll be required to contribute to Social Security. Your continued earnings history may also be used to increase your benefits when Social Security reviews your benefits calculation.
Taxes on Social Security Benefits
For the other side of this question, you may or may not need to pay taxes on your Social Security benefits. This depends on whether or not your Modified Adjusted Gross Income (MAGI) is above a certain threshold that depends on your filing status (i.e. single or married filing jointly, for instance).
Up to 85% of a taxpayer’s Social Security benefits may be taxable. This will depend on your MAGI and filing status: above $32,000 and filing jointly, or above $25,000 and filing single, head of household, or filing separately.
To calculate your MAGI,
- Take one-half the total of your Social Security or Railroad Retirement benefits from your SSA-1099 or RRB-1099 (these are reported on Form 1040, line 20a);
- Add earnings from W2s (Form 1040, line 7);
- Add taxable interest from 1099-INTs (Form 1040, line 8a);
- Add ordinary dividends from 1099-DIV (Form 1040, line 9a);
- Add other gains from Form 4797 (Form 1040, line 14);
- Add IRA distributions from 1099-R (Form 1040, line 15b);
- Add taxable pensions from 1099-R (Form 1040, line 16b);
- Add Schedule E income (rental real estate, royalties, partnerships, etc.);
- Add farm income (Form 1040, line 18);
- Add unemployment compensation (Form 1040, line 19)
- Add any other income that is reported on Form 1040, line 21;
In addition to these forms of income, you also need to add back any tax-exempt interest from investments like municipal bonds (reported on Form 1040, line 8b).
Whether or not you’re now retired, you should have a plan that integrates your retirement lifestyle and income sources with a view towards your taxes in retirement. Reach out to speak with a qualified tax planner who can bring all the pieces of your income, benefits and expense puzzle together to find a plan that’s right for you.