Social Security Benefits Face Higher Taxes for Working Retirees

The Social Security Administration taxes a portion of benefits for workers who continue to earn a salary after reaching their full retirement age, which is typically 67. Taxability is determined by provisional income, a calculation that combines adjusted gross income, nontaxable municipal bond interest, and half of the annual Social Security benefit.

Individuals may owe ordinary income taxes on up to 85% of their benefits if their provisional income exceeds $34,000 for single filers or $44,000 for married couples. Because these thresholds are not indexed for inflation, a growing number of retirees are hitting these limits as wages and costs rise.

To reduce these tax liabilities, retirees can transition to part-time work or decrease withdrawals from other retirement accounts. However, these strategies may reduce the funds available for current living expenses.