How Much Can You Earn and Still Receive Social Security?
Retirees are often ready, willing, and able to start new careers that may earn them significant incomes during their years of “leisure.” However, some individuals may feel that it is not worthwhile to work for wages, only to have to “give up” some of those earnings in the form of higher income taxes. As frustrating as that may sound, it is important to understand the fundamentals of Social Security income and taxation so you can make your retirement years more “golden” and less “taxing.”
Income Limits: Paying to Work?
The first factor to consider is the Social Security “give-back.” If you are age 62 or older, but still under the full retirement age (65–67 depending on your birth year), and receiving reduced Social Security benefits, you must “give back” $1 for every $2 earned above $15,720 in 2015. If you reach full retirement age in 2015, your benefits are reduced by $1 for each $3 earned over $41,880 in months prior to your full retirement age. When you reach your full retirement age, there is no limit on your earnings, and Social Security benefits are not reduced.
How Much Is Taxable?
A second factor affecting your Social Security income is the potential taxation of your monthly benefit. If you are working and also receiving a check from the Social Security Administration (SSA) each month, you must first determine how much, if any, of your benefit is included in your gross taxable income. The first step in estimating this amount is to add half of your Social Security benefits to all your other income, including any tax-exempt interest.
This total is then compared to a first-tier threshold of $25,000 for a single taxpayer or a married taxpayer who is filing separately and lived apart from his or her spouse for the entire year, or $32,000 for a married taxpayer filing jointly. For a married taxpayer filing separately, who lived with his or her spouse for any period during the year, the first-tier threshold is $0.
For illustrative purposes, suppose your total applicable earnings are $27,000, and you are married and filing jointly. Since the total does not exceed the applicable threshold amount of $32,000, then no portion of your Social Security benefit is taxable. However, if the total exceeds the applicable threshold amount, further calculation is needed to determine the amount of your benefit that is taxable. For more information, refer to IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits, visit the Social Security website at www.ssa.gov, or consult your qualified tax professional.
Performing these calculations is no simple task. So, it is important to understand the potential tax consequences when thinking about receiving Social Security while still working, and plan accordingly. As with all tax planning matters, be sure to consult a qualified tax professional to help ensure that your planning decisions are consistent with your overall financial goals.
The information contained in this article is for general use and while we believe all in formation to be reliable and accurate, it is important to remember individual situations may be entirely different. Therefore, information should be relied upon only when coordinated with professional tax and financial advice. Neither the information presented nor any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any insurance or securities products and services. Written and published by Liberty Publishing, Inc. Copyright © 2015 Liberty Publishing, Inc. RPSTAXB5-04
The information provided is not written or intended as specific tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.