What Age Do You Stop Paying Taxes on Social Security?

August 15, 2021

As mandated by the FICA or SECA, a Social Security tax is collected in the form of a payroll tax. But does this mandate have any exceptions? Is there a certain age when you can stop paying this tax?

Are you over the age of 65? Whether single or married, you can stop paying taxes on Social Security benefits. If you have a combination of modest income and other low-paying supplemental income sources called “combined income” or 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 $1,534 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. If you wait until age 70 to receive Social Security, you will receive 132% of your qualified benefits.

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 receive a monthly Social Security benefit. The typical tax rate for Social Security benefits in 2020 for the average worker is about 7.65%. And if you are self-employed, the rate can be as high as 15.30%.

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.

Here are the metrics as detailed by Social Security. As long as you do not have a sizable supplemental income, you won’t pay a sizable tax on your benefits.

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.

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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