Dear Rusty: If we take our Social Security (SS) benefits at our full retirement age (66 years and 6 months for both of us) and we both continue to work, what are the income-tax consequences? Is there an age at which we can still work and draw Social Security without tax consequences on our benefits?             

Signed: Overtaxed Couple

Dear Overtaxed Couple: Regardless of when you claim your Social Security benefits, whether those benefits are subject to federal income tax depends entirely upon your income as reported to the IRS. This is true even if you collect Social Security benefits after you reach your full retirement age — there is no age at which SS benefits become exempt from federal income tax. Here is how it works.

Taxation of your Social Security benefits depends on two things — first, the amount of your combined income from all sources (known as your modified adjusted gross income or MAGI) and second, your income-tax filing status (whether you file your income taxes individually or jointly as a married couple). Your MAGI consists of your adjusted gross income (AGI) on your income-tax return, plus half of your Social Security benefits received for the tax year, plus any other non-taxable income you may have had. 

If your MAGI for the tax year exceeds certain thresholds, then some of your Social Security benefits are taxable at whatever your normal IRS tax rate is. If, as a couple, you file your income taxes as “married-filing jointly,” and your MAGI exceeds $32,000, then 50 percent of your Social Security benefits received during the tax year becomes part of your overall taxable income at whatever tax rate is standard for your income. But if your MAGI as a couple for the tax year exceeds $44,000 then up to 85 percent of your SS benefits becomes part of your overall taxable income. If your MAGI as a married couple is less than $32,000 then your Social Security benefits aren’t taxable. 

For those who file their federal income taxes as a single, the thresholds are lower. If your MAGI as a single filer is $25,000 or less, your Social Security benefits aren’t taxable. However, if your MAGI as a single filer is more than $25,000, then half of your Social Security benefits received during the tax year becomes part of your overall taxable income, and if your MAGI as a single filer is more than $34,000 then up to 85 percent of your benefits for the tax year becomes part of your taxable income. But a word of caution for those who are married but choose to file taxes “married – filing separately” — if you file separately and live together at any time during the tax year, the threshold for taxation of Social Security benefits is zero. 

 So, federal taxation of your Social Security benefits depends entirely upon your combined income from all sources and your income-tax filing status — your age doesn’t come into the picture at all, even if you are collecting Social Security benefits after your full retirement age. Be aware, however, that a dozen U.S. states levy an income tax on Social Security benefits, so you should check the tax laws in your state of residence to see if some or all your Social Security benefits will be taxed by the state you live in.       

Russell Gloor is a national Social Security advisor at the AMAC Foundation, the nonprofit arm of the Association of Mature American Citizens (AMAC). The 2.4 million member AMAC says it is a senior advocacy organization. Send your questions to: ssadvisor@amacfoundation.org.

Author’s note: This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). The NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity.