Is Social Security Taxed at Retirement?
According to the Social Security Administration, most American workers are eligible to receive Social Security benefits after retirement. Nearly one-third of retirees who receive Social Security benefits are required to pay taxes on these benefits.
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Background
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Workers must earn credits to become eligible for Social Security benefits. At least 40 credits must be earned, with a maximum of four credits per year. The amount a retired worker can expect to receive in Social Security benefits each month will depend on his lifetime earnings.
The Facts
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Social Security benefits are only taxed if a retiree's adjusted gross income exceeds a threshold set by Congress. Retirees who receive no other income than Social Security benefits most likely will owe no taxes on these benefits.
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Significance
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According to the Social Security Administration, one-third of retirees receiving Social Security benefits are required to pay taxes on these benefits. Most of these individuals continue working after retirement. Depending upon a retiree's adjusted gross income, up to 85 percent of his Social Security benefits may be taxed.
Considerations
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The IRS provides guidelines for calculating whether a retired person will be required to pay taxes on Social Security benefits. IRS Forms 1040 and 1040A also provide worksheets for calculating the taxable amount of a retiree's Social Security benefits.
Planning
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The Social Security Administration recommends that retirees who expect to owe taxes on wages and other income should make quarterly estimated tax payments. In addition, it is possible to have federal taxes withheld from Social Security benefits during the year.
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References
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