taxes

What happens if I exceed the Social Security earnings limit? Will I owe taxes?

Judy O'ConnorDear Tax Talk,
If you turned 64 in 2015 and collected Social Security retirement benefits and worked $31 over the limit allowed, how much money are you taxed on ? What is the Social Security earnings limit?
-- Annie

Mature professional woman in blue jacket | iStock.com/heebyj

iStock.com/heebyj

Dear Annie,
Exceeding the Social Security earnings limit may result in taxes and, depending on your age, could also result in cut benefits.

The taxability of Social Security benefits is a function of your IRS filing status and your "combined income."

The IRS has a work sheet in IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits, that goes through 19 steps to calculate your taxable benefits.Here is a summary of that process:

  • If your filing status is individual and your combined income is between $25,000 and $34,000, you could end up paying taxes on up to 50% of your Social Security benefit. If it is more than $34,000, up to 85% could be taxable.
  • The rules are different if you file a joint return with your spouse. If you have a combined income between $32,000 and $44,000, you could end up paying taxes on up to 50% of your benefits. If your income exceeds $44,000, up to 85% of your benefits could be taxable.
  • If you are married filing separately, it is a little more complicated and you could end up paying taxes on up to 85% of your benefit.

What is "combined income"?

Combined income is the sum of your adjusted gross income, tax-exempt interest and half of your annual Social Security benefit.

Another issue with respect to an earnings limit could come into play if you work, receive Social Security retirement benefits and are younger than full retirement age. Here's how it works:

  • Social Security will deduct $1 from your benefit payments for every $2 you earn over the annual limit. The annual limit in 2015 and 2016 is $15,720.
  • The rules are more lenient beginning in January of the year you reach full retirement age. Up until your birthday month, Social Security will deduct $1 of your benefit payments for every $3 you earn above $41,880.

Your full retirement age depends on when you were born. In your particular situation, your full retirement age is 66.

You earned $31 over the earnings limit, so the adjustment to your Social Security income is $15.

The good news is that as you continue to work and pay Social Security taxes, the Social Security Administration will review your records every year to determine whether your additional earnings will increase your monthly benefit.

Thanks for the great question and all the best to you.

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