At What Age Is Social Security No Longer Taxable?
Managing the tax on Social Security has little to do with age. Learn how your overall income is calculated and how it impacts the taxability of your benefits.
There is no specific age at which Social Security benefits become tax-free. Instead, the taxation of your benefits is determined annually by your “combined income,” a figure calculated by the Internal Revenue Service (IRS). This calculation, not your age, dictates whether a portion of your benefits will be taxed. If your combined income falls below a certain threshold, your benefits are not taxed, but if it is above the threshold, a percentage of your benefits becomes subject to federal income tax.
How Social Security Taxation is Determined
The taxability of your Social Security benefits hinges on your combined income. The IRS calculates this figure by taking your Adjusted Gross Income (AGI), adding any nontaxable interest, and then adding 50% of your total Social Security benefits for the year. Your AGI includes all taxable income sources, such as wages and withdrawals from traditional retirement accounts like a 401(k) or IRA.
Once you calculate your combined income, the IRS applies specific thresholds. For single filers with a combined income below $25,000, none of their Social Security benefits are taxed. If their income is between $25,000 and $34,000, up to 50% of their benefits may be taxable. For those with a combined income exceeding $34,000, up to 85% of their benefits could be subject to tax.
The income thresholds are different for those who are married and file a joint tax return. For these couples, a combined income of less than $32,000 means their Social Security benefits are not taxed. If their joint income falls between $32,000 and $44,000, up to 50% of their benefits may be taxable. For married couples with a combined income over $44,000, the taxable portion can be as high as 85%.
For example, a single individual with an AGI of $22,000 and $16,000 in Social Security benefits has a combined income of $30,000, calculated as $22,000 (AGI) + $8,000 (50% of Social Security). Since this amount is between $25,000 and $34,000, up to 50% of their benefits would be taxable. The specific calculation shows that $2,500 of their benefits would be taxed.
The Role of Full Retirement Age
Many people associate Full Retirement Age (FRA) with their Social Security, but it does not influence the taxation of benefits. FRA is the age at which you are entitled to receive your full, unreduced retirement benefit, and it is determined by your birth year. For individuals born between 1943 and 1954, FRA is 66, and it gradually increases to 67 for those born in 1960 or later.
The function of FRA relates to the amount of your monthly check. You can begin receiving benefits as early as age 62, but this results in a permanently reduced monthly payment. Conversely, delaying benefits past your FRA allows you to earn delayed retirement credits, which increase your monthly benefit amount up until age 70.
State-Level Taxation of Social Security Benefits
Beyond federal rules, you must also consider how your state of residence treats Social Security income, as the rules can vary significantly. A majority of states do not impose any tax on Social Security benefits, fully exempting this income from state taxes.
A smaller number of states do tax Social Security benefits to some extent, often using their own income thresholds and exemptions. For example, a state might offer a full exemption for retirees whose income falls below a certain level, which could be higher than the federal thresholds.
Because these regulations can change, you should verify the specific rules in your state. The most reliable source for this information is the state’s department of revenue or taxation. Consulting their official website or a local tax professional can provide clarity on how your benefits will be taxed.
Strategies to Manage Taxable Social Security Income
Since the taxation of Social Security is tied to your combined income, managing that income is the most effective way to control your tax liability. Several strategies can help lower your combined income:
- Prioritize withdrawals from Roth IRAs and Roth 401(k)s. These withdrawals are tax-free and are not included in the AGI portion of the combined income calculation, which helps keep your income below the taxation thresholds.
- Convert funds from a traditional IRA or 401(k) to a Roth IRA. While you must pay income tax on the converted amount, this can be beneficial if done before you start receiving Social Security, as future withdrawals will be tax-free.
- Time income-producing events carefully. For instance, if you plan to sell investments that will generate a large capital gain, consider doing so in a year when your other income is lower to avoid pushing your combined income over a threshold.
- Make a Qualified Charitable Distribution (QCD) if you are over age 70½. A QCD is made directly from a traditional IRA to a charity and is not included in your AGI. This helps lower your combined income while also satisfying any Required Minimum Distributions (RMDs).