You did it. You finished up your long, dedicated career, and it’s finally time to take a well-deserved break. You worked hard throughout your adult life, and you’ve comprehensively planned for your financial future. It’s smooth sailing from here on out—time to kick back and let the benefits checks roll in.
While you realize you’ve contributed to Social Security throughout your working life, you might be surprised to learn that this benefit can actually be taxable in retirement. In this post, we examine the circumstances under which you’ll have to pay taxes on Social Security:
If, as a retiree, your income is low—or if your sole source of income is your Social Security benefit, it’s unlikely you’ll have to pay taxes on it. However, if your income is above a certain threshold, you may owe taxes. A quick calculation can determine your situation.
Add the following together:
- Your annual adjusted gross income
- Your nontaxable interest
- 50 percent of your Social Security benefit
If your total is more than $25,000 if you’re single—and $32,000 if you’re married—then you’ll have to pay taxes on 50 percent of your Social Security benefit. If your total is more than $34,000 if you’re single—and $44,000 if you’re married—then you’ll have to pay taxes on 85 percent of your benefit.
Likelihood of being taxed
Presently, around 60 percent of retirees fall below this threshold. However, it’s worth noting that the cutoffs stated above don’t change with inflation over time. So if you retire 20 years from now, it’s more likely that your income will be above this marker, and the chances are higher that you’ll wind up paying taxes on your Social Security benefit.