As a retired person you are allowed to earn as much as you are able to earn. However, how much you earn will decide whether you owe taxes or are exempt from taxes. Unless your only source of income is Social Security benefits you will probably pay taxes. Working with a tax expert will help you plan carefully and effectively to minimize your tax liability.
Tax Crisis Institute is a reliable solution to your tax issues. We are here to help with questions you may have and resolution for your tax issues.
What Is the Maximum Income You Can Have Before Paying Taxes?
The need to file tax forms and the amount of taxes you owe is based on three factors:
- Your Filing Status: single; married filing jointly/married filing separately; head of household; qualifying widow/widower with dependent child
- Your Age: under 65 years of age/65 years of age or older (there is special consideration if you and your spouse are over 65 and one or both of you is blind)
- You Total Annual Income: The maximum income allowed before you have to pay taxes changes each year.
Income includes both earned and unearned income (retirement, Social Security, interest and dividends, 401K/IRA are considered unearned income). For retirees in 2019, the minimum income range for filing was $5 for married filing separately to $27,000 for married filing jointly with both spouses 65 or older.
The IRS includes this information in a table in Publication 17 which is published every year.
Do I Owe Taxes if All My Income Is Unearned?
What you owe in taxes is in part determined by your sources of income. But your tax liability is also based on your age, total income, and filing status. Pensions, interest and dividends, capital gains, unemployment income are all considered unearned income sources. These may be taxable depending on your age, total income, and your filing status.
A simple way to start is to add half your Social Security benefits to other unearned income such as those listed above. This will help you determine your total unearned income. Compare that with the minimum income for filing federal taxes. For 2019 tax filing that amount was $5 for married filing individually up to $27,000 for married filing jointly with both spouses 65 or older. Consulting a tax specialist can be the easiest way of determining what your total tax liability is.
Are Social Security Benefits Taxable?
Your tax liability for Social Security depends on whether you have other sources of income in retirement and how much you receive from those resources. If your only source of income in retirement is Social Security you will probably not owe federal taxes on it.
If you take one half your Social Security and add it to all other sources of income both earned and unearned. This is your total income. If that total falls below the minimum required amount for filing you will not pay taxes on your benefits.
Regardless of your total income from all sources, you should never pay federal income taxes on more than 85% of your social Security benefits.
Are Taxes Withheld From Social Security Benefits?
Taxes are not automatically withheld from Social Security benefits.You can do voluntary withholding if you think you might owe. A qualified tax specialist can advise you.
If you think you will owe taxes on your Social Security benefits it might be best to set up voluntary withholding. To have taxes withheld you will need to fill out Form W-4V. The form is available at the IRS website. You simply complete it online or fill it out and return it to your Social Security office. You are required to choose a withholding amount of 7%, 10%, 12% and 22%.
What if You Collect Social Security Before Full Retirement Age?
You can apply to collect Social Security Benefits at age 62 even if that is before your full retirement age. You will, however, need to plan carefully. Your minimum income for filing purposes will be different than for those 65 and older. In addition to tax liability, you are restricted by what you earn before paying a penalty to the Social Security Administration.
If you will not reach full retirement during 2020 you are limited to $1,520 per month or $18,240 for the year. Once you reach that limit, $1 for every $2 you earn will be withheld. If you work and will reach full retirement age during 2020, you can earn up to $48,600. Until you reach full retirement age $1 out of every $3 will be withheld from your benefit. Once you reach full retirement age there is no limit to what you can earn or penalty levied against your Social Security benefits.
Will I Owe State Taxes if All My Income is Unearned?
California has the highest state tax rate in the country. To your benefit, however, California Social Security benefits are not taxed in retirement. All other income earned and unearned is fully taxed.
If you earned a retirement pension in the state of California and move out of the state before collecting, you will not pay California state taxes on that pension. Even though the pension was earned in California, the state is prohibited by federal law from collecting state taxes from non-residents.
If you are approaching full retirement age (FRA) you have decisions to make in order to have the best retirement. We at Tax Crisis Institute can help guide you through those decisions. We are equipped to answer your tax questions about your retirement. Please call.
Tax Crisis Institute has been a tax relief leader for over 30 years. When you work with the Tax Crisis Institute, we’ll make sure you don’t pay anything more than you owe!
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