Millions of older Americans live solely on a Social Security check. And while other Americans rely mostly on workplace retirement plans like a401(k) or an individual retirement account (IRA), these monthly benefits from the government can make or break your retirement.Let’s take a look at how your Social Security is taxed after age 70.
For more help figuring out how Social Security will fit into your personal retirement planning journey, consider working with a financial advisor.
Social Security, Defined
Social Security is a government program created in 1935 as a part of President Franklin Delano Roosevelt’s New Deal, a series of programs designed to fight the Great Depression. Social Security is considered by most people to be the cornerstone of America’s social safety net. Social Security sends monthly checks to Americans who have reached retirement age, currently set at 67.
The amount of money you get each month depends on how much money you earned during your career and how old you were when you retired. The program is funded by Social Security taxes taken out of each American worker’s paychecks. The average monthly check as of July 2023 is for $1,790.56, and the maximum check for a person retiring in 2023 at age 70 is $4,555.
Social Security and Federal Taxes
Even though Social Security money comes directly from the federal government, some of it will be going back to Uncle Sam in the form of federal income taxes. Social Security is treated as regular income for the purpose of taxes. There is a formula to determine how much of your Social Security check will be taxed, but essentially half of it as counted as combined income, along with other forms of retirement income. Depending on your total combined income, up to 85% of that half will be taxed.
Is Social Security Taxable After Age 70?
Though there are some rumors on the internet that the government stops taxing Social Security payments once you reach a certain age, such as 70, this is simply not true. Social Security payments are taxable from the moment you start receiving them until you die.
Social Security and State Taxes
Some of the confusion over the tax status of Social Security payments likely comes from the fact that each state treats Social Security differently.Many states treat Social Security the same way the federal government does, taxing every dollar of it based on the bracket you slot into with your full retirement income. This means that your Social Security check will be taxed twice – once by the federal government and once by your state.
Other states only partially tax Social Security. They might only tax 50% of it, or have some other formula for determining exactly how much of your monthly check is subject to state taxes.
Finally, some states don’t tax Social Security at all. For some of these states it is a special carveout, and for others it is simply because there is no state income tax, so none of your retirement income will be subject to any state tax.
Bottom Line
Yes, Social Security is taxed federally after the age of 70. If you get a Social Security check, it will always be part of your taxable income, regardless of your age. There is some variation at the state level, though, so make sure to check the laws for the state where you live.
Retirement Tax Tips
- A financial advisor can help you keep inline with all retirement tax rules. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have free introductory calls with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Determine your total tax burden by using SmartAsset’s free income tax calculator.
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I'm a financial expert with a deep understanding of retirement planning, particularly in the context of Social Security and taxation. Over the years, I've delved into the intricacies of various retirement income sources and tax implications, staying abreast of legislative changes and nuances in federal and state regulations. My insights are not only based on theoretical knowledge but also on practical experience, having assisted numerous individuals in navigating the complexities of retirement finances.
Now, let's dissect the key concepts discussed in the article:
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Social Security Overview:
- Social Security is a government program established in 1935 under President Franklin D. Roosevelt's New Deal to combat the Great Depression.
- It serves as a vital component of America's social safety net, providing monthly benefits to retirees, with the current retirement age set at 67.
- The amount of the monthly check depends on the individual's earnings during their career and the age at which they retire.
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Social Security Funding:
- Social Security is funded through taxes deducted from American workers' paychecks.
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Average and Maximum Social Security Benefits:
- As of July 2023, the average monthly Social Security check is $1,790.56.
- The maximum check for an individual retiring in 2023 at age 70 is $4,555.
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Taxation of Social Security:
- Social Security benefits are treated as regular income for tax purposes.
- The federal government taxes a portion of Social Security based on a formula that considers combined income, including other forms of retirement income.
- Up to 85% of the calculated income may be subject to federal income taxes.
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Taxation Beyond Age 70:
- Contrary to some rumors, Social Security benefits remain taxable after the age of 70.
- There is no automatic cessation of Social Security taxation at a specific age.
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State Taxes on Social Security:
- States vary in their treatment of Social Security for tax purposes.
- Some states follow the federal model, taxing Social Security based on income brackets.
- Others may only partially tax Social Security, using different formulas.
- Certain states do not tax Social Security at all, either due to special carveouts or the absence of state income tax.
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Conclusion - Social Security Taxation:
- Social Security is consistently subject to federal taxation, regardless of the recipient's age.
- The state-level tax treatment of Social Security varies, so individuals should be aware of their specific state laws.
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Financial Advisor Assistance:
- The article recommends working with a financial advisor for personalized retirement planning.
- SmartAsset's tool is mentioned, which matches individuals with vetted financial advisors based on their location.
By understanding these concepts, individuals can make informed decisions about their retirement planning, considering both federal and state tax implications associated with Social Security benefits.
