Social Security Benefits
Social Security benefits can begin for an eligible worker at age 62. The current full retirement age, which is the age at which benefits are not reduced, is 66. The full retirement age will reach 67 for those born in 1960 and later. If benefits are delayed past full retirement age, additional credits can be earned to age 70. Spouses, divorced spouses, and widow(er)s may be eligible to collect on a worker’s benefits at an earlier age. Regardless of the age at which benefits commerce, the same tax rules apply.
For federal income tax purposes, Social Security benefits may be tax free or includible in gross income at 50% or 85% (Code Sec. 86). High income taxpayers can assume they are subject to the 85% inclusion amount. Others may to do calculations to determine whether benefits are tax free or their applicable percentage.
If “income” is no more than a base amount, benefits are tax free. Income for this purpose is income that is taxed, such as wages, interest, ordinary dividends, capital gain distributions and pensions, tax exempt interest and one half of Social Security benefits. The base amount is $25,000 if single, head of household, qualifying widow(er), or married person filing jointly and zero if married filing separately who lived apart from his or her spouse for the entire year; $32,000 if married filing jointly, and zero if married filing separately but lived with the spouse for any part of the year. If “income” is more than the base amount but not more than $34,000 if single, head of household, qualifying widow(er), or married person filing separately who lived apart from his or her spouse for the entire year ($44,000 for joint filers), then 50% of benefits are includible in gross income. If income is more than $34,000, then 85% of benefits are includible in gross income.
Source: Top 5 Tax Issues for Retirement Photo: Pexel
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Rhonda A. Mannes,