The taxation of Social Security benefits and income limits is an important aspect to consider for individuals receiving Social Security payments. Here’s an overview:
Taxation of Social Security Benefits
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Provision for Taxation
Social Security benefits may be subject to federal income tax based on your combined income. Combined income is calculated as the sum of your adjusted gross income (AGI), nontaxable interest, and half of your Social Security benefits.
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Taxation Thresholds
Depending on combined income, up to 50% or 85% of Social Security benefits may be subject to taxation. For individuals, the thresholds are between $25,000 and $34,000 for the 50% taxation tier and over $34,000 for the 85% tier. For couples filing jointly, the thresholds are between $32,000 and $44,000 for the 50% tier and over $44,000 for the 85% tier.
Income Limits and Social Security Benefits
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Earnings Test for Early Filer
If you claim Social Security benefits before reaching full retirement age (FRA) and continue to work, there is an earnings limit. The limit is $22,320 per year for 2024. If you earn above this limit, $1 in benefits will be withheld for every $2 earned above the limit.
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Earnings Test in the Year of FRA
In the year you reach full retirement age, there is a higher earnings limit until the month you reach FRA. This year, the limit is $59,520. For every $3 earned above this limit, $1 in benefits will be withheld.
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No Earnings Limit after Full Retirement Age
Once you reach full retirement age, there is no limit on earnings, and you can earn any amount without a reduction in Social Security benefits.
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Additional Considerations
It’s important to note that the income limits and tax provisions may be subject to change based on updates to tax laws and Social Security regulations.
Consultation with Tax Professionals
Given the complexities of tax laws and individual financial situations, it’s advisable to consult with a tax professional or financial advisor to understand the specific implications of your circumstances. They can provide personalized guidance on optimizing your financial strategy and minimizing tax liabilities related to Social Security benefits. Contact our team of Abacus Professionals at 417.823.7171 or info@abacus.cpa.
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