Your Social Security Income Rose by 8.7% This Year —

Will It Impact Your Taxes Next April?

You’ve heard the claim: “Seniors don’t pay income taxes after age 70!” This is a bunch of baloney, so press the mute button when you hear it. Older Americans do pay income taxes, and most of you know it. This is true if you receive almost any income in ADDITION to Social Security benefits. Not only do you have a potential tax liability, but up to 85% of your Social Security benefits can be taxable if your income exceeds certain thresholds. It is only when Social Security is your SOLE source of income that you won’t need to file a tax return.

To determine what portion of your Social Security benefits will be added to your taxable income, the IRS requires that you add your:

Adjusted Gross Income (AGI)

+ nontaxable interest

+ half of your Social Security benefits

= Your “combined income”

• If you file a federal tax return as an "individual" and your combined income* is:
• between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
• more than $34,000, up to 85 percent of your benefits may be taxable.
• If you file a joint return, and you and your spouse have a combined income* that’s:
• between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
• more than $44,000, up to 85 percent of your benefits may be taxable.

For example: A married couple who receives $3,080 per month ($36,960) for the year in Social Security and has $26,600 in taxable savings and pension income.

$26,600 + $18,480 (one-half of Social Security benefits) = $45,080.

Since $45,080 is over $44,000, the couple pays taxes on up to 85 percent of their Social Security benefits, or $31,416 ($36,960 x .85) is added to their taxable income.

Total taxable income:

$26,600 + $31,416 = $58,016.

To help you determine what portion of your benefits are taxable, the IRS has an online tool: https://www.irs.gov/help/ita/are-my-social-security-or-railroad-retirement-tier-i-benefits-taxable.

Once you have figured that part out, you can get a quick idea of how much you might owe by using the standard deduction amounts for 2023:

When your gross income exceeds the standard deduction for your filing status, you need to file a tax return. These rules apply to seniors, no matter what age.

Standard Deduction Amounts For Tax Year 2023: Returns due by April 2024

*Source: Internal Revenue Service inflation adjustments for 2023, section 15, page 13.

There’s an additional standard deduction if you are 65 or older and blind. The extra deduction is:

• If filing Single or Head of Household — $1,850 if 65 or older, or $3,700 if 65 or older AND blind.
•  If filing Married Filing Jointly or Separately — $1,500 per qualifying individual if 65 or older or blind, or $3,000 per qualifying individual if age 65 or older AND blind.

Returning to our example of a married couple with an income of $58,056. Assuming both are over age 65. They qualify for a standard deduction of $27,700 plus $3,000 for each being over the age of 65 or $30,700 in a standard deduction. That would lower the taxable income amount to about $27,356, putting this couple into the 12% tax bracket, assuming no other reductions to their taxable income.

How did you fare this past tax season? Please take TSCL’s 2023 Retirement Survey and let us know!

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