Social Security benefits are modest compared to past earnings of recipients, so the annual cost-of-living adjustment (COLA) increase is vital to help the monthly payments keep pace with inflation. However, as the dollar amount that beneficiaries receive inches upward they could be in for a rude surprise; they may surpass thresholds established, above which a portion of their Social Security income becomes taxable.
Before 1984, Social Security benefits were not taxed. However, to keep the Trust Fund that supports the program solvent, bipartisan legislation was passed to tax a portion of payments to seniors citizens, surviving spouses, and the disabled if they had income above certain thresholds.
At the onset, less than one in ten beneficiaries paid income tax on their benefits. But that percentage has risen over time. Unlike benefits, the thresholds were not indexed to inflation and in the intervening four decades no inflation adjustments have been made. This meant that as benefits rose, more recipients crossed over the thresholds. Now 56 percent of beneficiaries pay income tax on a portion of their benefits, sometimes as much as 85% if their total income exceeds upper thresholds.
There is no age at which you will no longer be taxed on Social Security payments. So, if those payments when combined with your other forms of income, exceed one of the two thresholds, then you will have to pay at least federal taxes on either 50% or 85% of the benefits you receive. At the state level, there are only nine that currently tax Social Security benefits.
How are Social Security payments taxed?
The tax rate for Social Security benefits varies based on the taxable household income of recipients. As well, one’s tax bracket is dependent on the filing status of the Social Security recipient.
Individuals with a Total Gross Income, including Social Security, of more than $25,000 will be taxed on up to 50 percent of their Social Security income. Couples who file jointly will begin being taxed when their total income exceeds $32,000.
Individuals earning more than $34,000, or couples with a combined gross income of at least $44,000, will be taxed on up to 85 percent of their Social Security benefits.
Typically it is only retirees, who have very little household income aside from their Social Security entitlement, who could be exempt from any form of taxation on the payments.
How is the Social Security tax rate calculated?
The rate of taxation levied on Social Security payments is similar to that of other forms of income. Filers must submit their adjusted gross income, which combines their salary, Social Security benefits and all other sources of taxable income. If that total exceeds the minimum threshold then at least 50 percent of your Social Security benefits will be considered taxable income and will be treated as such.
FAQs
Social Security tax FAQs
At what age do Social Security benefits become non-taxable? ›
Social Security can potentially be subject to tax regardless of your age. While you may have heard at some point that Social Security is no longer taxable after 70 or some other age, this isn't the case. In reality, Social Security is taxed at any age if your income exceeds a certain level.
At what age do seniors stop paying federal taxes? ›
Taxes aren't determined by age, so you will never age out of paying taxes. Basically, if you're 65 or older, you have to file a return for tax year 2023 (which is due in 2024) if your gross income is $15,700 or higher.
Do seniors over 70 need to do federal tax returns every year? ›
If Social Security is your sole source of income, then you don't need to file a tax return. However, if you have other income, you may be required to file a tax return depending on the amount of other income. Here are the guidelines.
How much can you earn while on Social Security at age 70 and not pay taxes? ›
Starting with the month you reach full retirement age, you can get your benefits with no limit on your earnings.
At what age do I stop paying Social Security taxes? ›
There is no age at which you will no longer be taxed on Social Security payments. So, if those payments when combined with your other forms of income, exceed one of the two thresholds, then you will have to pay at least federal taxes on either 50% or 85% of the benefits you receive.
How do you get the $16728 Social Security bonus? ›
Have you heard about the Social Security $16,728 yearly bonus? There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.
Will Social Security be taxed in 2024 for seniors? ›
Unless your combined income for 2024 is less than $25,000 (less than $32,000 for married couples filing jointly), a percentage of your Social Security payments will be subject to income tax.
How much money can a 70 year old make without paying taxes? ›
Seniors don't have to file a return until their income exceeds $14,050. Married filers over 65 do not need to file a joint return unless their income exceeds $27,400.
How much of my Social Security income is taxable? ›
Substantial income includes wages, earnings from self-employment, interest, dividends, and other taxable income that must be reported on your tax return. Between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. More than $34,000, up to 85% of your benefits may be taxable.
If you want individualized help preparing for retirement or creating a tax strategy, you can bring on a financial advisor. At What Age Can You Stop Filing Taxes? Taxes aren't determined by age, so you will never age out of paying taxes.
How can senior citizens avoid taxes? ›
Seniors can earn more income than younger workers before submitting a tax return. People age 65 and older can earn a gross income of up to $15,700 before they are required to file a 2023 tax return, which is $1,850 more than younger workers.
Can I get a tax refund if my only income is Social Security? ›
You would not be required to file a tax return. But you might want to file a return, because even though you are not required to pay taxes on your Social Security, you may be able to get a refund of any money withheld from your paycheck for taxes.
At what age is Social Security not taxable? ›
Social Security tax FAQs
Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.
What is the 5 year rule for Social Security? ›
You must have worked and paid Social Security taxes in five of the last 10 years. If you also get a pension from a job where you didn't pay Social Security taxes (e.g., a civil service or teacher's pension), your Social Security benefit might be reduced.
Do seniors still get an extra tax deduction? ›
IRS extra standard deduction for older adults
For 2024, the additional standard deduction is $1,950 if you are single or file as head of household. If you're married, filing, jointly or separately, the extra standard deduction amount is $1,550 per qualifying individual.
At what age can I earn unlimited income while on Social Security? ›
How much can you earn and still get benefits? later, then your full retirement age for retirement insurance benefits is 67. If you work, and are at full retirement age or older, you may keep all of your benefits, no matter how much you earn.
Do you still pay Social Security tax after age 65? ›
Everyone working in covered employment or self-employment regardless of age or eligibility for benefits must pay Social Security taxes. However, there are narrow exceptions to paying Social Security taxes that apply at any age, such as an individual who qualifies for a religious exemption.
At what income limit does Social Security become taxable? ›
Between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. More than $34,000, up to 85% of your benefits may be taxable.
When you're retired, you'll still have to pay taxes. True? ›
Q. Does California tax retirement income? The state of California doesn't include Social Security retirement benefits in its income tax rates, but other forms of income can be subject to taxation, which can be anywhere from 1% to 12.3%.
