Do You Have to Pay Taxes on Your Social Security and Other Important Questions, Answered

Many Americans who collect Social Security benefits (or who plan to) want to keep up on how the laws are changing. These rules might affect choices you’ll make like when to start collecting benefits and whether to continue working part-time. Also, questions often arise about how to pay taxes on your Social Security.

Here, we’ve rounded up answers to frequently-asked questions about Social Security involving taxes, part-time jobs, cost-of-living adjustments, and more. Page 8 addresses the one burning question we all have regarding Social Security.

1. Do I pay federal taxes on Social Security income?

Your Social Security benefits aren’t tax-free. | Scott Olson/Getty Images

Social Security benefits used to be tax-free, but thanks to bills signed by presidents Ronald Reagan and Bill Clinton, up to 85% of your Social Security income is subject to taxes. How does this affect you? Once you figure out your combined income for last year, see if it exceeds the taxable threshold.

  • Married, filing jointly: If your combined income exceeds $32,000, up to 50% of your Social Security income is taxable. If your combined income exceeds $44,000, up to 85% is taxable.
  • Married, filing separately: No matter what your combined income, up to 85% may be taxable.
  • Single: If your income exceeds $25,000, up to 50% of your Social Security income is taxable. If your income exceeds $34,000, up to 85% is taxable.

Next: What about state taxes?

2. Do I pay state taxes on my Social Security check?

income tax sign

Thirteen states tax your Social Security benefits. | Joe Raedle/Getty Images

In addition to what Uncle Sam is collecting in federal Social Security taxes, 13 states tax Social Security as well. These are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.

Just how much your state taxes your benefits varies. For instance, Vermont treats Social Security benefits in the same way as the federal government. Connecticut taxes Social Security for single filers earning more than $50,000 and married/joint filers earning more than $60,000.

Next: Retirement age changes

3. Has the Social Security retirement age gone up?

man holding social security card in his hand

The age at which people can start claiming full retirement benefits has changed. | KenTannenbaum/iStock/Getty Images 

Yes. Social Security’s gradually increasing full retirement age has gone up in 2018, as follows:

  • If you were born in 1654 or earlier, your full retirement age is 66.
  • If you were born in 1955, your full retirement age is 66 years, two months.
  • If you were born in 1956, your full retirement age is 66 years, four months.
  • If you were born in 1957, your full retirement age is 66 years, six months.
  • If you were born in 1958, your full retirement age is 66 years, eight months.
  • If you were born in 1959, your full retirement age is 66 years, 10 months.
  • If you were born in 1960 or later, your full retirement age is 67 years.

These ages are important to know because if you start to claim your Social Security benefits early, you will receive a reduced amount of income. Just how reduced depends on how early you claim the benefits. For instance, if your full retirement age is 66 and you claim at 62, you will face a 25% reduction.

Next: Cost-of-living changes

4. Are there cost-of-living adjustments?

An Apple iPhone 6s displaying the calculator

Social Security does make cost-of-living adjustments to benefits. | iStock.com/Jlende

Yes. Another 2018 change to Social Security includes a 2% cost-of-living adjustment (COLA). It started with the December 2017 payment. This is the highest COLA in six years is due to higher inflation. However, it remains historically low compared to the average 3.8% adjustment since the current method was established in 1975. (If you’re a retiree on Medicare Part B, this Social Security adjustment could actually be consumed by those rising premiums.)

Next: Taxable earnings cap changes

5. Is the taxable earnings cap changing in 2018?

tax filing

You’ll have to pay Social Security tax on the first $128,700 of income in 2018. | Tim Boyle/Getty Images

Yes. The taxable earnings cap is rising as well in 2018 for Social Security. Each year, a maximum amount of income is subject to Social Security tax. For 2017, this was at $127,200. Anything above this threshold was not taxable for Social Security. In 2018, this amount is rising by $1,500 to $128,700. This means high-income individuals will end up paying more in 2018 in Social Security tax than they paid in 2017.

Next: Changes if you collect while still working

6. What if I’m still working and claiming Social Security?

Payslip mock up on a table

You can work and collect Social Security, but there are rules you need to be aware of. | iStock.com

The limits go up in 2018 for those who have not yet reached retirement age, yet are working and claiming Social Security, as follows:

  • If you will reach full retirement age after 2018, $17,040 in earnings will be excluded from consideration. (This equals $1,420 per month.) Beyond this threshold, your Social Security can be reduced by $1 for every $2 in excess earnings.
  • If you will reach full retirement age during 2018, $45,360 in earnings will be excluded from consideration. (This equals $3,780 per month.) Beyond this threshold, your Social Security can be reduced by $1 for every $3 in excess earnings.

Next: How to maximize your benefits

7. How can I maximize my Social Security benefits?

Make sure you work at least 35 years to maximize your Social Security benefit. | Hybrid Images/Cultura

If at all possible, make sure you’ve worked at least 35 years prior to claiming Social Security. This is because your Social Security payment amount is calculated based on the amount you earned in your 35 highest-income working years. If you only worked 30 years, the formula would factor in five years with a $0 income, and you’d get smaller benefit checks.

As we previously mentioned, it’s also important not to start collecting Social Security too early, as you’ll receive smaller payments. Also, for every year beyond your designated full retirement age, you’ll receive around 8% more, until age 70.

Next: The burning question everyone asks

8. Will Social Security run out?

Social Security might not go bankrupt, but it does face challenge. | William Thomas Cain/Getty Images

The good news is as long as people continue to work and pay taxes, Social Security won’t run out of money. However, the system currently collects (via taxes) only three-quarters of the benefits it pays out each year. The remaining portion of the payments come from the Social Security Trust surplus that built up when taxes collected exceeded benefits paid out.

“Once that is gone, the system will only be able to pay the 75% covered by the payroll tax,” said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. According to the Social Security Administration’s 2015 report, that will happen in 2034. Others predict that could happen as soon as 2025.

This might be seen as all the more reason to beef up a 401(k) or IRA account.

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