Are My Social Security Benefits Reduced Or Taxed If I Continue to Work?
Each year as we meet with our clients, we receive many questions about Social Security. Our job is to help our clients determine the right time to claim their social security. This advice can help clients save millions.
Beth Lynch has written blogs and conducted a webinar on claiming your social security benefits.
Are My Social Security Benefits Reduced Or Taxed If I Continue to Work?
This is a two-fold question.
First, the reduction of benefits is only when an individual is under full retirement age. When you collect a benefit before full retirement age, you are subject to the earnings test. If your earnings are above that amount, your benefit will be reduced. We encourage our clients not to apply for social security benefits if they are under FRA and working. After FRA, the earnings test does not apply, meaning your benefit will not be reduced no matter how much you earn from working.
The other part of this question is about benefits being taxed. Most people will pay taxes on their social security benefits. The amount of tax paid depends on your income from all sources. If your total income is more than $25,000 for an individual or $32,000 for a married couple filing jointly, you must pay income taxes on your Social Security benefits. Below those thresholds, your benefits are not taxed.
Will the Stimulus Check Increase the Tax on My Social Security Benefits?
As I stated earlier, your social security benefits can be taxed if your income is above the thresholds. Any additional taxable income will increase your adjusted gross income, which then increases your provisional income for Social Security tax purposes. If your provisional income goes up enough, then you’re looking at a tax increase. So, the key question is whether your stimulus checks boost your taxable income.
Stimulus checks are really just advanced payments of a new “recovery rebate” tax credit for the 2020 tax year. As such, they aren’t included in taxable income. So, your stimulus check won’t increase your AGI or your provisional income. And if your provisional income doesn’t go up, the tax on your Social Security benefits won’t either.
Also, while I am on taxes, people often wonder what happens to the tax money collected from Social Security. It goes back into the trust fund and is one of the three sources of income besides payroll taxes and interest on the securities in the trust fund.
Written by:
Beth Lynch, CFP®
Financial Advisor
Fort Pitt Capital Group, LLC
Foster Plaza 10, Suite 350 | 680 Andersen Drive | Pittsburgh, PA 15220
(412) 921-1822 | blynch@fortpittcapital.com
