The top federal income tax rate in the United States between 1913 and 2022 has fluctuated from a low of just 7% to a high of 94% – and in forty-nine of these years, this rate has exceeded 70%. While the U.S. has languished in a low tax rate environment for the past decade or so, many economists believe that taxes are much more likely to rise than they are to fall in the near future. So, having your Social Security benefits taxed in retirement could have a major impact on your lifestyle in the future.
How Much of Your Social Security Retirement Benefits are Taxed?
There are several factors that could make Social Security income subject to income tax. These can include the following situations:
- Whether or not you have reached your full retirement age (FRA) when you file for benefits
- The amount of income you receive from other sources (if any)
Therefore, depending on your specific situation, you may have to pay tax on a percent of your Social Security benefits (in 2022), if you meet the following criteria:
You file your annual federal income tax return as an individual, and your combined income is:
- Between $25,000 and $34,000 (up to 50% of your benefits may be taxable)
- More than $34,000 (up to 85% of your benefits may be taxable)
You file a joint income tax return with your spouse, and you have a combined income that is:
- Between $32,000 and $44,000 (up to 50% of your benefits may be taxable)
- More than $44,000 (up to 85% of your benefits may be taxable)
- You are married and you file a separate tax return
The amount of your combined income is equal to your adjusted gross income plus any non-taxable interest earned, plus one-half of your Social Security benefits.
For many years, the Social Security full retirement age was 65 for all retirees across the board. However, in order to help with reducing some of the pressure on the system, the FRA can be as high as age 67 now, based on the year that you were born.
Social Security Full Retirement Age (FRA)
| 2022 Tax Rate | Single Tax Filers | Married Individuals Filing Jointly | Head of Household |
|---|---|---|---|
| 10% | $0 to $10,275 | $0 to $20,550 | $0 to $14,650 |
| 12% | $10,275 to $41,775 | $20,550 to $83,550 | $14,650 to $55,900 |
| 22% | $41,775 to $89,075 | $83,550 to $178,150 | $55,900 to $89,050 |
| 24% | $89,075 to $170,050 | $178,550 to $340,100 | $89,050 to $170,050 |
| 32% | $170,050 to $215,950 | $340,100 to $431,900 | $170,050 to $215,950 |
| 35% | $215,950 to $539,900 | $431,900 to $647,850 | $215,950 to $539,900 |
| 37% | $539,900 or more | $647,850 or more | $539,900 or more |
Source: Social Security Administration
So, how can you reduce or even eliminate the amount of tax that you owe on Social Security benefits?
One option is to make withdrawals from a Roth IRA account first – particularly if you are under the age of 72, when you must begin taking withdrawals from traditional IRAs and retirement plans. The income and withdrawals from Roth accounts itself is not taxable, and withdrawals from Roth IRAs also do not count as combined income for Social Security purposes.
Another alternative is to delay the start of your Social Security retirement benefits until you at least reach your full retirement age. At that time, you may earn or generate any amount of income from other sources and not have it affect the taxability of Social Security benefits.
Before committing to any type of retirement income strategy, though, it can help to discuss your situation with an income specialist. At Annuity Gator, we focus on helping people maximize their income in retirement.
So, if you would like to set up a time to chat with an income specialist, please feel free to contact us by phone at (888) 440-2468 or via email by going to our secure online contact form. We look forward to assisting you.
