Earned income- SS

[rufusnmaddie]

I am collecting a pension more than 27k and would like to start collecting SS at 65 (2 yrs before full eligibility).  Will the pension count as earned income, resulting in penalties or repayment once I start collecting SS?

thanks

A

[xmasbaby0]

Your pension is not earned income that would result in a reduction of SS benefits before you reach full retirement age.  But it is taxable income which can make your SS taxable.

Up to 85% of your Social Security benefits can be taxable on your federal tax return.  There is no age limit for having to pay taxes on Social Security benefits if you have other sources of income along with the SS benefits.  When you have other income such as earnings from continuing to work, investment income, pensions, etc. up to 85% of your SS can be taxable. 

 What confuses people about this is that before you reach full retirement age, if you continue working while drawing SS, your benefits can be reduced if you earn over a certain limit. (For 2021 it was  $18,960.  For 2022 it was  $19,560  —  for 2023 $21,240)  For 2024, $22,320.  For 2025 it will be $23,400

After full retirement age, no matter how much you continue to earn, your benefits are not reduced by your earnings; your employer will still have to withhold for Social Security and Medicare.  If you work as an independent contractor then you will pay self-employment tax for Social Security and Medicare.

To see how much of your Social Security was taxable, look at lines 6a and 6b of your 2024 Form 1040

https://www.irs.gov/help/ita/are-my-social-security-or-railroad-retirement-tier-i-benefits-taxable

You need to file a federal return if half your Social Security plus your other income is

Single or Head of Household      $25,000

Married Filing Jointly                  $32,000

Married Filing Separately            $0

Some additional information:  There are 9 states that tax Social Security—Colorado, Connecticut,, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont  and West Virginia These states offer varying degrees of income exemptions, but two mirror the federal tax schedule: MN and VT.

[rufusnmaddie]

Thank you,

So how do you determine how much your SS will be reduced or what the penalty is for being over allowable income?

[xmasbaby0]

Again---your SS is not reduced by your pension.   It can only be reduced if you continue to work while you are receiving SS and if you are younger than full retirement age.   If you are not working while receiving Social Security then there is no reduction of your benefits.