Continued Taxation Payments on Social Security Payments?

• Author: Bryan Miller
• Posted: 2024-08-07

Like many people across the United States, retirees are often looking forward to the day when they can stop working and thus end having to pay taxes on their earned income. Apart from that time of people's life also includes the ability to begin collecting social security checks that they have spent so much of their lives paying into. However, because people have been paying into the program for so long, they usually assume that they no longer have to pay taxes on it. However, experts and those who have been collecting social security for a while now are becoming aware that the government may still be collecting some form of payment from you. Read on to learn why taxation is still a very real possibility, even after you've qualified for social security and have officially retired.

Inability to Use Savings

When retirees are planning their post-work life, they usually sit down to write down all their expenses. This would include not only their basic expenses such as rent, food, medicine, and utilities but also travel plans and supplies for hobbies they may want to start in the future. During this time, they will usually include the funds that they are going to use to pay for everything on their list. That would usually include using social security funds as well as their life savings, to name a few. Issues arise when people find out that they cannot gain access to their savings until a certain age, with that age often being 65 and above. Note that people can begin collecting social security at the age of 62. So, what's the issue? When people tap into their savings before the law states they can, a heavy fee in the form of a tax is requested by the IRS. This would lead people to have to use their social security funds to pay on taxes they now owe for accessing their savings too early. For many, that is too much of a financial burden to carry as they are no longer working within their respective careers.

Additional Forms of Income

Contrary to popular belief, recipients of social security are still allowed to have other forms of income. However, retirees are often not aware that additional income isn't doesn't just come from a job but from other avenues such as dividends and growing interest. This means that when you begin filing your taxes post-retirement, you may need to begin paying federal income taxes on your social security using the additional income that you may be relying on.

How Much Would You Pay?

In short, the amount of taxes that you're going to pay will be determined by the amount of income you have within your retirement accounts as well as by income you are currently accumulating. For example, most people will end up paying at or around 11.3%, while the top 1% of retirees may expect to pay 22.7%, according to the center for retirement research at Boston College. However, it must be noted that not all social security recipients will pay taxes on half of their benefits, according to the IRS (Internal Revenue Service.)

IRS BreakDown

To make things easier, the IRS has provided retirees with a clear amount of taxes they will pay. For example, anyone earning between $25,000 and $34,000 will have to pay income tax on at least 50% of their benefits. That number jumps up to a whopping 85% for those earning more than $34,000. For those filing jointly, if you make anywhere between $32,000 and $44,000, you will pay income tax on 50% of your benefits. That number is bumped up to 85% when you begin making more than $44,000. According to the executive director of the National Association of Registered Social Security Analysts, Martha Shedden, people are paying more taxes on their social security benefits than they did during the 1980s. That means that people are being taxed three times more than 40 years ago.

As you can see from the information above, being taxed on your social security is a very real thing. For many, this is something that they are unaware would happen and could possibly bring financial difficulties early on within their retirement years. That is why experts in the field are often recommending people to begin seeking financial counseling before making their retirement official.