What Age Do You Stop Paying Taxes on Social Security?

August 6, 2020

The only things that are certain in life are death, taxes, and the inevitable cessation of paying taxes. Well, relative to Social Security taxation purposes anyway. Are you over the age of 65? Whether single or married, you can stop paying taxes on Social Security benefits if these benefits are your sole income source.

Or, if you have a modest income and other low-paying supplemental income sources. This is a so-called, “combined income.” If your combined income falls under the minimum Social Security metric threshold, then you can stop paying taxes.

You can also stop paying taxes on Social Security benefits if your income surpasses the wage base limit maximum threshold. (Relatively speaking anyway.)

The average monthly Social Security benefit is about $1,400 for a retirement age American. If this is your only source of income, you should understand your tax obligation.

Sound confusing? Well, to put it simply, to stop paying taxes on Social Security you must:

  • Be over age 65
  • Financially subsist solely on Social Security
  • Financially subsist on a modest combined income

I will parse these details out as simply as I can because it can be confusing.

It may help to first set the decks and briefly explain the Social Security system first.

Social Security 101

The Old-Age, Survivors, and Disability Insurance Program, or OASDI Program, is the official name for the Social Security program. President Franklin D. Roosevelt ratified the Social Security Act on August 14, 1935.

Social Security is a work insurance and retirement benefits program.

To qualify, you must pay into the Social Security system via payroll taxes throughout your working lifetime. Or at least the bare minimum of 10 years.

You must be at least 62 to begin receiving Social Security benefits.

If you wait until age 70, you will receive proportionally larger monthly benefit amounts.

Social Security benefits can act as a sole or supplementary retirement income. Additionally, Social Security pays benefits to those with life-altering disabilities. Social Security also pays survivor benefits to designated beneficiaries like children and spouses.

About 1-in-5 Americans receives a monthly Social Security benefit. The typical tax rate for Social Security benefits in 2020 for the average worker is about 7.65%.

About 169 million Americans pay into Social Security annually via payroll taxes.

Many pay into Social Security via payroll taxes for decades.

So, if you can stop paying taxes into Social Security by a certain age, why wouldn’t you?

Reasons Why You Can Stop Paying Taxes on Social Security

There are several reasons why you can stop paying taxes on your Social Security benefits. It largely depends on your personal financial circumstances.

If you’re 65 years old and your Social Security benefits are your sole income source, you can stop paying taxes on them.

There are several financial metrics that determine such, but the main factor is that you have a modest gross income.

For example, are you 65, single, and make less than $13,850? If Social security is your sole gross income source, then you can stop paying taxes on your benefits.

These gross income thresholds to stop paying taxes increase if you are 65 and married.

Are you and your spouse 65, file taxes jointly, and have a joint gross income of less than $26,600? Then there is no need to pay taxes on your benefits.

However, if you are 65 and married to someone under the age of 65, then the gross income threshold falls to $25,300.

These gross income thresholds are exacting and may not always apply to you. For example, are you 65 and live with a spouse but file an individual tax return? In that case, 85% of your Social Security benefits are considered gross income and you will have to file a tax return.

OK, now let’s discuss, “combined incomes.”

Combined Income

Depending on your sources of combined income, you can stop paying taxes on Social Security.

“Combined income,” is a metric that the I.R.S. uses to calculate how much of your Social Security benefits to tax. So, half of your benefits, adjusted gross income, and any nontaxable interest from investments are included in such calculations.

As long as your income falls below these combined income thresholds, you can stop paying taxes on your benefits.

If you are 65 and make under $25,000, then you hit the taxation threshold for combined income.

Married couples over the age of 65 who file jointly and make under $32, 000 will pay no taxes.

Your taxation obligation won’t be as severe even if you make $100,000 or more, depending on your circumstances.

Wage Base Limit

The wage base limit restricts the amount of income you pay annually on Social Security taxes.

The I.R.S. adjusts the wage base limit annually based on market conditions. This limit is enforced because without it, a millionaire could receive tens of thousands of dollars in benefits monthly.

In 2019, the wage base limit was $132,900. This means that a 65-year old making that amount pays $8,239 in taxation.

So no, paying zero taxes don’t apply here, but it is useful information to know.

Speak to a Financial Advisor

I say it often, but you should never assume when it comes to paying taxes – or not paying taxes.

Speak to a financial advisor about your tax obligations.

This is especially important if you are a senior citizen living on a modest, fixed income.

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