A 73-year-old worker earning more than ever before is worried about unexpected tax bills on Social Security benefits.
The concern is common among older Americans who continue working while collecting Social Security. Here's what you need to know about how earnings affect your benefits and taxes.
If you're still working and receiving Social Security before reaching full retirement age, the government will reduce your benefits. The Social Security Administration withholds $1 in benefits for every $2 earned above the annual limit. For 2024, that limit is $23,400.
Once you reach full retirement age, there's no earnings limit, and you can work as much as you want without affecting your benefits.
Regarding taxes on your benefits, up to 85% of your Social Security income may be subject to federal income tax, depending on your combined income. Combined income includes your adjusted gross income, nontaxable interest and half your Social Security benefits.
If your combined income is between $25,000 and $34,000 as a single filer, up to 50% of your benefits may be taxable. If it exceeds $34,000, up to 85% may be taxable.
To avoid surprise tax bills, consider adjusting your federal tax withholding on your paychecks or making estimated quarterly tax payments. You can also request voluntary federal income tax withholding on your Social Security benefits through Form W-4V.
Consulting a tax professional can help you develop a strategy to minimize your tax liability while maximizing your retirement income.
