Retirement tax questions

[BJL66]

I recently retired but am working a small part time job. Just wondering how income taxes work when you are collecting social security and working a small part time job

[JandKit]

Hi Bjl66

congrats on reaching this milestone. Generally, there isn't much of a change in your tax situation other than the fact that social security is typically not subject to taxes until one half of the social security received and other working income exceeds $25,000 for a single person and $34,000 for a married couple. At these markers, the maximum that your social security can be taxed ar is 85%. If you can stay under these margins, you can enjoy your social security tax free. Caveat: If you are married, living with your spouse but not filing a joint return, the tax brgan on your social security with the first dollar received.

Enjoy your retirement!

[MarianneK]

Hello BJL66, 

Thanks for your question.   A part time job and social security can get tricky.   

Let me assume that you took your social security at full retirement age.   That's great because if you get a part time or a full time job, you will not have to pay back any of your social security.   Generally speaking, social security is not taxable.  It will depend on how much you make at your part time job.   

If your combined income is less than $25,000, none of the social security will be taxable.   If your combined income is between $25,000 and $34,000, you may have to pay tax on up to 50% of the social security.   If your combined income is above $34,000, then up to 85% of your social security can be taxable.   This assumes that you are filing as single.   

Your tax situation will depend on how much you are earning at your part time job.  TurboTax does have an online tool that you can use to estimate your refund / taxes owed.   You can input your income from social security and your estimated wages for the year and see what tax you might owe.   Here is the link.  Note this is for TY 2022.  TY 2023 is not yet available.   

Tax Calculator for 2022 

[Opus 17]

First, 

If you are under your full retirement age, income from working over a certain amount ($21,240 in 2023) will reduce your next year's social security benefit.  If you are at or over full retirement age, working does not reduce your benefit.

Second,

Income earned from working is always subject to social security tax withholding, even if you are also drawing your social security benefit.  Depending on your work history, paying social security taxes might increase your benefit in future years, as the increase in lifetime social security taxes paid might cause your benefit to be recalculated.

Third,

If social security is your only income, it is non-taxable.  Receiving any other kind of income (from working, or a pension, or lottery prize, etc.) can cause your social security benefit to be treated as taxable income.  Turbotax will handle this automatically. 

[xmasbaby0]

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)

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 2022 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.