01 Feb Is Social Security taxed based on age?

Q. I keep reading that Social Security benefits are taxed if one has not reached full retirement age. This implies once one reaches full retirement age, your benefits are not taxed. Is this true?
— Unsure

A. Unfortunately, not correct.

It seem you’re confusing the taxability of Social Security benefits with how much you can keep of your Social Security benefits if you continue to work.

The taxability of benefits is not based on age, but on how much other income you have besides the Social Security income, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.

“If the amount of that income — salary, investment income, including tax free income, IRA and pension distributions, etc. — plus one half of your Social Security benefits exceeds certain thresholds, then your benefits are taxable for federal tax purposes,” Hook said.

The amount subject to tax could be as great as 85 percent of your benefits, he said.

At least New Jersey doesn’t tax Social Security benefits.

As to how much you can keep if you collect Social Security benefits and continue to work at the same time, Hook said you may have to return some of the Social Security benefits you were paid.

But this isn’t a tax.

“If you are under full retirement age for the entire year, you forfeit $1 for every $2 you earn above $17,800,” he said. “In the year you turn full retirement age, you forfeit $1 for every $3 you earn above $45,360.”

Hook notes that this is only until you reach full retirement age during the year. Once you do, you can earn as much as you like and keep all your benefits, he said.

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This post was first published in February 2018.