Social Security is some retirees' only source of income, while others have additional income sources. In either case, Social Security benefits are considered taxable income. Here's how to know if you may owe income tax on a portion of your benefits and how much you might owe.
How much can you earn while on Social Security?
You can earn as much as you want while on Social Security.1 When people ask this question, they're usually asking how much they can earn before part of their Social Security income becomes taxable. This question is an important one. The answer might influence when you choose to claim Social Security and whether you pursue other
When is your full retirement age?
You can start claiming benefits as early as 62 or as late as 70. The Social Security Administration (SSA) decreases your benefit if you claim early and increases it if you claim late. When you file, your monthly benefit amount remains your monthly benefit for life, with some exceptions.
Say you were born in 1960 and decide to claim benefits at age 62.2 Your monthly retirement benefit could be reduced by 30% because you're claiming benefits five years before reaching full retirement age. If you could have received $1,500 per month by waiting until age 67, you may instead receive $1,050 per month for life. Your benefit may not increase to $1,500 when you turn 67.
What about claiming after full retirement age? For every year past age 67 that you wait to claim benefits (up to age 70),
To decide when to claim, consider how long you think you may live, your other sources of income and taxes.
How are Social Security benefits taxed?
So, how much can you earn while on Social Security before it becomes taxable?3 Even though you paid Social Security taxes during your working years that reduced your take-home pay, some of your
In other words, for every $100 you receive, $15 isn't taxable, and some or all of the remaining $85 may be taxable.
- If your combined income is more than $25,000 and your tax filing status is single, you may have to pay tax on as much as 50% of your benefits.
- If your combined income is more than $34,000 and your tax filing status is single, you may have to pay tax on as much as 85% of your benefits.
- If your combined income is more than $32,000 and your tax filing status is married filing jointly, you may have to pay tax on as much as 50% of your benefits.
- If your combined income is more than $44,000 and your tax filing status is married filing jointly, you may have to pay tax on as much as 85% of your benefits.
It's important to note that these Social Security income limitations aren't quite as low as they sound.
How do you calculate your combined income?
Combined income has a specific definition when it comes to taxes on Social Security benefits. It's calculated like this:
- Half of your Social Security benefits
- Plus your adjusted gross income
- Plus nontaxable interest
Your combined income is important because it affects how much tax you may owe on your benefits.
- Income is your wages, dividends, capital gains, business income, retirement distributions and other income.
- Adjustments to income are also called above-the-line deductions. For 2021, there were about
two dozen expensesyou could claim as adjustments, such as educator expenses, health savings account contributions, certain retirement account contributions and student loan interest.
- Adjusted gross income is your income minus adjustments.
Nontaxable interest is also called
Combined income example
Here's a sample combined income calculation to help those definitions make sense.
- Half of your Social Security benefits: Say you and your spouse together receive $2,600 in Social Security benefits each month, or $31,200 per year. Half of $31,200 is $15,600.
- Adjusted gross income: You and your spouse took $50,000 in 401(k) distributions and earned $2,000 in stock dividends from your taxable brokerage account. Your AGI is $52,000.
- Nontaxable interest: You earned $1,000 from a long-term tax-exempt municipal bond fund.
Your combined income would be $15,600 + $52,000 + $1,000 = $68,600.
What should you consider before working while on Social Security?
If you're thinking about
Do you need Social Security right now?
If you can delay claiming, your monthly benefit payment could be higher for life. This higher benefit may also help any
If you claim Social Security before you reach full retirement age and earn income from work, your monthly benefit payment may be
How much tax could you owe?
Many people in their 60s, 70s and beyond work because they need the money or because they want to remain engaged. If you're on the fence about continuing to work, you might want to learn what your take-home pay could be given the income taxes you may owe. Could the money you gain be worth the time you spend working?
This calculation requires you to consider and understand combined income and Social Security benefit taxes as well as your marginal federal and state tax rates. Some people may prefer not to keep working after calculating how much of their income would go to taxes.
What should you consider before claiming Social Security?
If you're thinking about retiring and starting Social Security benefits, you might want to ask yourself, "Am I in the highest-earning years of my career?" If so, continuing to work could help you get a larger Social Security benefit for life.
If you're already eligible for the
It's important to make sure you're