First year of retirement

[a2h]

1. Are there any special tax provisions in the first year of retirement to allow for the transition from income to social ss benefit regarding the income brackets?

2. There is language in some social security docs state that benefits "may" be taxed.   Under what circumstances are social security benefits NOT taxed or not subject to the income limitations?

3. If you are retiring early, I understand only wages and income are included in adjusted gross income not dividends etc?  Is this so and  does Turbo Tax include that in its calculation of adjusted gross income?

[KochuK · Accepted solution]

Hi a2h, good day! Glad that you come to the Special Forum. I'll provide some information to your three questions:

1. What is the special rule about earnings in the first year of retirement?

Sometimes people younger than full retirement age retire in the middle of the year and have already earned more than the yearly earnings limit. There is a special rule that applies to earnings for one year, usually the first year of retirement. Under this rule, you can get a full Social Security benefit for any whole month you are retired, regardless of your yearly earnings.

https://faq.ssa.gov/en-US/Topic/article/KA-01927

Your regular income before retirement is part of total income (Form 1040, line 1-13). So is the taxable portion of social security.

A portion of Social Security retirement and disability benefits may be taxable when income exceeds a taxpayer’s base amount. Certain amounts that are nontaxable for regular income tax purposes are added back to determine taxable Social Security benefits. The base amount is determined by the taxpayer’s filing status.

MFJ $32,000

Single, HOH, QW, MFS (lived apart from spouse all year) $25,000

MFS (lived with spouse at any time during the year) $0

Rate of taxation. Income above a taxpayer’s base amount will result in an inclusion of up to 50% (85% for higher incomes) of the taxpayer’s Social Security benefits on line 6b, Form 1040. If a taxpayer’s income is above the base amount, use the Social Security Benefits Worksheet:

Page 16 of IRS Pub 925 - Worksheet 1

https://www.irs.gov/pub/irs-pdf/p915.pdf

2. All regular social security benefits are subject to the above calculation - Social Security Benefits Worksheet.

Supplemental Security Income (SSI) is not taxable.

3. I believe you were referring to "what income counts" to determine social security benefits for early retirement. They are primarily W-2 wages and self employment income which count toward the Social Security earning limit.

Once it is determined, it is reported on Form 1040, line 6a Social Security Benefits, line 6b Taxable amount.

All your other income, such as wage, interest, dividend, capital gain etc. are ALL reportable on Form 1040 as part of Total Income and Total Adjusted Gross Income.