I was working full time for 2021 up until end of May when I retired.
I qualify for full Social Security benefits in October of 2021.
But it seems that I would be taxed on 85% of Social Security for 2021 since my salary from this year would put me over the $34,000 combined income (individual) limit.
I am better off waiting to start collecting Social Security in January of 2022 instead where my combined income would be less?
When calculating how much tax is taken from Social Security it looks like it is:
combined income = adjusted gross income + nontaxable interest + half of your Social Security benefits
Does the standard deduction get applied to this as well as a deduction?
If you would normally apply for your benefits to start in October, it seems rather silly to worry about the tax. You would be giving up 3 full months of payments. Maybe you would net 70% of the payment after state and federal taxes, but 70% of something is better than 100% of nothing, isn't it?
However, if delaying 3 months will also increase your lifetime payout, that might be a factor in favor of delaying. I don't know how the increased benefit for delaying is calculated. For example, if by delaying, you give up 3 months that would be $5000 of net (after-tax) benefit, but you gain an extra $25 per month for the rest of your life, that will work to your benefit as long as you live to at least age 83.
Your taxable social security income is included in your AGI. Your standard deduction is then deducted from your AGI to arrive at your taxable income.
Waiting until Jan 2022 is a valid income tax strategy to reduce your income tax if your other income will be lower in 2022. This is a decision you need to make using all the information available. Of course do you need the money or can you wait ? The SS benefits could go up if you wait. Of course even if the SS is 85% taxable that would still mean that for every $ you get from SS 85 cents is taxable at say 12% then that means for every $ you get you pay 10 cents in tax but you still have 90 cents in your pocket.
If you would normally apply for your benefits to start in October, it seems rather silly to worry about the tax. You would be giving up 3 full months of payments. Maybe you would net 70% of the payment after state and federal taxes, but 70% of something is better than 100% of nothing, isn't it?
However, if delaying 3 months will also increase your lifetime payout, that might be a factor in favor of delaying. I don't know how the increased benefit for delaying is calculated. For example, if by delaying, you give up 3 months that would be $5000 of net (after-tax) benefit, but you gain an extra $25 per month for the rest of your life, that will work to your benefit as long as you live to at least age 83.