Many retirees plan to earn extra income to supplement their retirement expenses. But how much can a pensioner earn without paying taxes? The answer to this question varies depending on your situation. Understanding the tax rules related to retiree income can help you avoid costly surprises when tax time comes. If you need help reviewing the details of your situation, try using SmartAsset’s free financial advisor matching tool.
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When does a retiree’s income trigger taxes?
Retirees who are still working likely have at least two income streams: Social Security benefits and wages from a job. The Social Security benefits you receive may be taxable if 50% of your benefits, plus all other income, is above the specific limits for your filing status. These amounts are as follows:
Single filers, qualifying widowers and heads of households earning more than $25,000, based on the above calculations, may have to pay taxes on their Social Security benefits.
Married couples who file separately and who have lived apart for a full year and who earn more than $25,000, based on the calculations above, may have to pay taxes on their Social Security benefits.
A married couple filing jointly bringing in more than $32,000, based on the above calculations, may have to pay taxes on Social Security benefits.
With this, the benefits you receive may or may not be taxable based on your other income. For example, let’s say you are a single filer who received $20,000 in Social Security benefits. Additionally, you earned $20,000 at a part-time job. Doing the math, 50% of your benefits plus the rest of your income would amount to $30,000. With that, Uncle Sam would require you to pay federal taxes on a portion of your Social Security benefits.
As another example, suppose a married couple filing jointly receives Social Security benefits of $20,000. You also earn $20,000 through other sources. With that, 50% of your benefits plus the remainder of your income would amount to $30,000. This is less than the base amount for married couples filing jointly. So, you shouldn’t pay federal income tax on any of your Social Security benefits.
Take the time to crunch the numbers in your specific situation to find out how much you can earn before being taxed on that income.
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How will your Social Security be taxed?
If a portion of your Social Security benefit is taxable, you cannot avoid federal income tax. But you won’t pay taxes on your full Social Security benefit. Instead, you’ll pay taxes on 50% or 85% of your total Social Security amount.
If you’re single with an income between $25,001 and $34,000, you’ll pay taxes on 50% of your Social Security benefits. But as a single filer who has a total income of more than $34,000, you’ll pay taxes on 85% of your Social Security benefits.
Married couples filing jointly with income between $32,001 and $44,000 will pay taxes on 50% of their Social Security benefits. But as a married couple filing jointly with a total income of more than $44,000, you’ll pay taxes on 85% of your Social Security benefits.
Exceptions to this rule
Every rule has an exception. In this case, filers in some states need to be aware of their state’s tax requirements.
There are 12 states that tax Social Security benefits. These include Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. However, nearly every one of these states allows some type of deduction, credit, or income limit to minimize your tax burden at the state level.
New Mexico does not provide a way to minimize the burden. Instead, you will pay state taxes on all federally taxed Social Security income.
Will pensioners ever be able to stop paying taxes?
Filing taxes is often an unpleasant task. In some cases, there may be a point in your golden years where you can stop filing and paying taxes altogether. So how much can a retiree earn without paying taxes or even filing taxes? For retirees age 65 and older, here’s when you can stop filing taxes:
Single retirees earning less than $14,250
Married retirees filing jointly, earning less than $26,450 if one spouse is 65 or older, or earning less than $27,800 if both spouses are 65 or older
Married retirees filing separate returns and earning less than $5
Retired heads of households earning less than $20,500
Qualified retired widowers who earned less than $26,450
For those with an income below the thresholds listed, you may not need to pay taxes. But even if you don’t have to file taxes, it’s usually in your best interest to file them anyway. This is because you may be eligible for a tax return, which could be a big boost to your budget.
If you’re not sure whether or not you can stop filing taxes, the IRS has a helpful tool to help you find out. But talk to a financial advisor before you decide to skip filing your taxes. It could mean missing out on potential benefits.
Retirement can be expensive. But depending on your income, you may be able to save on tax costs. It is possible to earn money in retirement and not have to pay taxes on your earnings. Just be aware of what the limits are, given your situation. Also, check regularly for changes to the tax code because there are frequent changes to the rules.
Retirement Tax Planning Tips
Consider working with a financial advisor as you coordinate your earnings with your tax planning. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisors at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you reach your financial goals, start now.
Our income tax calculator can help you understand your marginal and effective tax rates and your annual tax liability.
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