Millions of senior citizens rely completely on Social Security payments. While most Americans rely on corporate retirement plans such as a 401(k) or an individual retirement account (IRA), these government perks can make or break your retirement.
Let’s look at how Social Security is taxed once you reach the age of 70.
Social Security is a federal program that was established in 1935 as part of President Franklin D. Roosevelt’s New Deal, a set of policies aimed at alleviating the effects of the Great Depression.
Most people regard Social Security to be the cornerstone of America’s social safety net. Americans who have achieved retirement age, which is currently set at 66, get monthly benefits from Social Security.
The amount of money you receive each month is determined on how much you earned during your employment and when you retired.
Social Security taxes are deducted from every American worker’s paycheck to fund the program. In 2022, the average monthly check will be $1,658, with a maximum check of $3,345.
Federal Taxes and Social Security
Despite the fact that Social Security funds are provided directly by the federal government, some of it will be returned to Uncle Sam in the form of federal income taxes.
For tax purposes, Social Security is considered normal income. When it comes time to file your taxes, any money you earned – including Social Security, money from retirement plans, pension payments, and anything you make from working after you’ve officially retired – will be added together to determine your taxable income.
After that, you’ll be assigned to a tax bracket and your tax liability will be determined.
Is Social Security taxable if you reach the age of 70?
Though some internet misconceptions claim that after you reach a specific age, such as 70, the government ceases taxing Social Security payments, this is simply not true. From the time you begin collecting Social Security benefits until you die, they are taxable.
Social Security and state taxes are two types of taxes.
Some of the ambiguity around the tax status of Social Security payments is likely due to the fact that each state handles the program differently. Many states treat Social Security in the same way as the federal government does, taxing every dollar based on the tax bracket you fall into with your total retirement income.
This means your Social Security check will be taxed twice: first by the federal government and then again by your state.
Other states only tax Social Security to a limited extent. They may just tax half of it, or they may use some other formula to figure out how much of your monthly paycheck is due to state taxes.
Finally, certain states do not levy any taxes on Social Security. It’s a specific carveout for some of these states, and for others, it’s simply because they don’t have a state income tax, so none of your retirement income will be subject to it.
Yes, at the age of 70, Social Security is taxed at the federal level. Regardless of your age, if you receive a Social Security check, it will always be included in your taxable income. However, there is considerable difference at the state level, so make sure to check the legislation in your own state.