To meet their financial needs in retirement, many people plan to work part-time or full-time after leaving the workforce. The question is, how much money can a retiree make before they have to start paying taxes?
Depending on the specifics of your case, we can give you a range of possible feedback on this question. You can save yourself a lot of money by being prepared for tax time by familiarizing yourself with the tax rules that apply to retiree income.
Is a retiree subject to taxes if they receive income?
Those retirees who continue to work after receiving Social Security benefits are likely supported by a combination of these two sources of income. Suppose the sum of your other income and half of your Social Security benefits is more than the applicable threshold for your tax filing status. In that case, some or all of your Social Security benefits may be taxable. A breakdown of these costs is as follows:
- Suppose you are a single filer, qualifying widower, or head of household with an annual income of more than $25,000. In that case, you may owe taxes on your Social Security benefits.
- Married couples who file their taxes separately, have lived apart for a whole year, and make more than $25,000 may be required to pay income tax on their Social Security benefits.
- It’s possible that the Social Security benefits of a married couple filing jointly with an income of more than $32,000 would be subject to taxation.
As a result, depending on your other sources of income, the benefits you obtain could end up being taxable to you. Consider the case of a single taxpayer who earned $20,000 in Social Security benefits. You also made $20,000 from working part-time. Half of your total benefits and other income would amount to $30,000. As a result, you’d have to hand over some of your Social Security benefits to the federal government through taxes.
Let’s look at a different scenario: a married couple who files jointly for Social Security benefits receives $20,000. Additionally, you have $20,000 in supplementary income. Your total revenue would be $30,000 with the 50% benefit and the other income. In the case of a married couple filing jointly, that amount is below the threshold. The money you receive from Social Security will be completely exempt from federal income tax.
Calculate how much money you can make based on your circumstances before starting to pay taxes on it.
How will the government tax your Social Security?
One cannot avoid paying federal income tax on any amount of their Social Security benefit subject to taxation. You won’t have to worry about paying taxes on your full Social Security check. Half or 85% of your Social Security benefit will be taxed instead.
Single filers with an annual income between $25,000 and $34,000 will have half of their Social Security benefits subject to taxation. You will owe taxes on 85 percent of your Social Security benefits if you file as a single person and have an annual income of more than $34,000.
Suppose a married couple’s joint income is anywhere between $32,001 and $44,000. In that case, half of their Social Security benefits will be subject to taxation. On the other hand, if you and your spouse file jointly and make more than $44,000, 85% of your Social Security income will be subject to taxation.
Some exceptions
There is always a caveat to every rule. In this particular scenario, taxpayers in certain states are required to be aware of the tax requirements imposed by their state.
Twelve states impose taxes on supplemental security income. This group consists of the states of Kansas, Colorado, Montana, Connecticut, Minnesota, Vermont, Missouri, New Hampshire, Nebraska, Rhode Island, New Mexico, West Virginia, and Utah. However, nearly all these states have tax exemptions, credits, or caps on taxable income.
New Mexico does not offer any options that would lessen the load. Instead, you’ll have to pay state taxes on top of the federal taxes taken from your Social Security check.
Will retirees ever be able to stop filing taxes?
Tax preparation is typically not viewed as a pleasant activity. You may no longer need to file tax returns or make tax payments at some point in your retirement. If you’re retired, how much money can you make without paying taxes or even filing a tax return?
For retirees aged 65 and older, the following options indicate when tax filing is no longer required:
- Single retirees with less than $14,250 a year
- Retired couples filing jointly with an annual income of less than $26,450 (if at least one spouse is 65 or older) or $27,800 (if both spouses are older than 65)
- Persons over the age of 65 who are the primary breadwinners in their homes and who earn less than $20,500
- Qualifying widowers over 65 whose annual income is less than $26,450
If your annual income is less than the specified minimums, you may be exempt from paying income taxes. However, filing taxes is usually in your best interest, even if you aren’t required to. This is because a tax refund if you’re eligible for one, can significantly improve your financial situation.
The IRS provides a helpful tool for those who are unsure of whether or not they need to continue filing tax returns. You should consult a financial planner if you’re considering not filing your taxes. It may cause one to forego possible advantages.
Final words
The cost of retirement can be high. However, tax breaks may be available depending on your financial situation. In retirement, you may be able to earn money without being subject to income tax.
You should know where you stand concerning these constraints. The tax code is subject to frequent revision, so it’s a good idea to keep tabs on it.
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