Retiring is a goal for many people after spending years in the workforce to prepare for this pivotal transition in life. With that comes planning for the future and applying for social security and retirement benefits.
But these benefits have regulations that people should make themselves aware of. People have to be within a certain age range to even apply for them and, under certain circumstances, they can be taxed. However, getting informed and managing your income can help ensure you reach your retirement goals.
At what age are social security benefits taxed?
Whether taxes are taken out of someone's social security benefits isn't a matter of age. Age determines when they can receive benefits. According to the IRS, social security benefits may be taxed if they're not a person's only source of income.
The amount of money someone needs to make for the benefits to be taxed varies. If a person is filing taxes as an individual and their overall income is between $25,000 and $34,000, they could pay income tax on up to 50 percent of their benefits.
For anything more than $34,000, a person could pay taxes on up to 85 percent of their benefits. The requirements change if they file taxes with a spouse or if they're married but file separately.
How do I swipe left on this tax season?— Andrea Carr CPA (@andreacpa0) January 10, 2021
What kind of taxes are taken out of my social security check?
According to the AARP, only income taxes are taken out of social security checks. And even then, benefits are only taxed when the above criteria are met.
How can I avoid paying taxes on social security benefits?
One of the easiest ways to prevent taxes from being taken out of social security benefits is to avoid earning extra income or to work without pay. However, if that's unavoidable, you could try to limit your earnings to less than $25,000 overall if you're filing taxes individually and less than $32,000 if you're filing with a spouse.
According to the Social Security Administration (or SSA), if someone is married and files taxes as an individual, they'll probably have to pay taxes on benefits. To calculate combined income, do the following calculation:
Adjusted gross income + Nontaxable interest + One-half of social security benefits = Combined income
However, having another source of income outside of social security may be unavoidable. The SSA states, "On average, retirement beneficiaries receive 40 percent of their pre-retirement income from Social Security." The SSA also mentions that it's important for people to plan for retirement properly to make sure they make enough money in retirement.
What kind of social security benefits are not taxable?
Keep in mind that there are three different kinds of social security benefits: monthly retirement, survivor, and disability. However, all of them are eligible to be taxed under the same set of circumstances. The only difference between them is when someone is eligible to apply for them, how much money they're able to receive, and how long they'll receive them.