My husband and I used a social security maximizer program that indicated I should start taking my SS at 62 and my husband should start at 70 in order to maximize our benefit. We had to plug in our numbers to determine the optimal time for both of us to draw SS. I would like to determine the tax ramifications before we follow that plan as I am already 62 and still working and the SS maximizer said I should start taking benefits in June, 2024. In 2023 our combined taxable income was $222,150 which should continue to be our approximate income. My benefits if taken would be $1665 per month. We live in CA. My husband is 64 now so we would not draw his benefit for 6 more years.
Can you advise what the tax ramifications would be? We don't necessarily need the money and we would plop it in savings if we drew it.
I don't think 62 will be full retirement age yet?
There are 2 different things to know about social security. People get them mixed up all the time. Social Security is saying your SS checks may be REDUCED. Not if it's taxable or not.
1. Your actual SS checks
If you are over full retirement age your actual ss checks won't be reduced. Otherwise they will actually reduce your payments if you make too much other income in the prior year. See SS FAQ for working after retirement
https://www.ssa.gov/benefits/retirement/planner/whileworking.html
First year special rule
https://faq.ssa.gov/en-US/Topic/article/KA-01927?msclkid=11bc282ccf2211ecb65078152b05ae6b
See page 5 for the special first year rule
https://www.ssa.gov/pubs/EN-05-10069.pdf
2. Income Tax (even the first year).
For any age up to 85% of Social Security becomes taxable when ALL your other income plus 1/2 your social security reaches:
Married Filing Jointly: $32,000
Single or head of household: $25,000
Married Filing Separately: 0
You better look at this SS page since you were born after 1960
TAX ON SOCIAL SECURITY
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 2019 it was $17,640— for 2020 it was $18,240; for 2021 it was $18,960. For 2022 it was $19,560 — for 2023 $21,240) For 2024, $22,320.
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 2023 Form 1040
https://ttlc.intuit.com/questions/1899144-is-my-social-security-income-taxable
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 $25,000 when filing single or head of household, or $32,000 when filing married filing jointly, $0 if you are filing married filing separately.
Some additional information: There are 11 states that tax Social Security—Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont These states offer varying degrees of income exemptions, but two mirror the federal tax schedule: MN and VT.
The tax laws for 2024 will change——for tax year 2024 Missouri and Nebraska will no longer tax SS
IF YOU WANT TO HAVE TAX WITHHELD FROM YOUR SOCIAL SECURITY BENEFITS
https://www.ssa.gov/manage-benefits/request-withhold-taxes
https://www.irs.gov/forms-pubs/about-form-w-4-v
FIRST YEAR OF SS RULES
https://faq.ssa.gov/en-US/Topic/article/KA-01927?msclkid=11bc282ccf2211ecb65078152b05ae6b
https://www.ssa.gov/pubs/EN-05-10069.pdf