Many people between the ages of 62 and 66 have to decide if they should keep working or retire and collect Social Security benefits before full-retirement age?
Of course, there’s more to consider than just finances, including quality-of-life and mental stimulation. But for boomers who continue full-time in their career at age 65, the decision has important tax and income ramifications.
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Social Security Benefits Reductions
If you are 65 years old and earn more than $24,480 in 2026, earnings that exceed that amount will be deducted from your benefits.
“One dollar withheld for every two dollars earned above the limit is the general formula,” said Brian Zink, CEO and founder of No Upfront Tax Relief.
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Someone earning roughly $60,000 per year and collecting Social Security benefits at age 65 would receive roughly $2,000 per month, according to estimated calculations (since we don’t know their exact salary for all 35 years). Their earned income exceeds the threshold by $35,520 per year or $2,960 per month. That means they’d lose $1,480 per month — half of $2,960. That brings their Social Security benefit down to $520.
However, if that person cut their hours to part-time, at half-pay, they’d only exceed the threshold by $5,520 for the year or $460 per month. That would reduce Social Security benefits by just $230 per month, leaving nearly $1,800 in their check.
Understanding Provisional Income
You also have to consider that those benefits could be taxed. The tax rate is based on your provisional income.
To calculate provisional income, add your adjusted gross income, plus tax-exempt interest plus 50% of your annual Social Security income. Single filers don’t have to pay taxes on their benefits if their provisional income is less than $25,000 ($32,000 for married filers). If your income falls between $25,000 and $34,000, you’ll pay your marginal tax rate on 50% of your Social Security Income. Have a provisional income of more than $34,000 (or more than $44,000 if you’re married) and you pay taxes on 85% of your Social Security income, up to the maximum taxable earnings of $176,100 for 2025.
For the example above, assuming no tax-exempt interest and a single filer, the 65-year-old working part-time would pay taxes on 50% of their Social Security benefits, while the person earning $60,000 per year would pay taxes on 85% of the benefits. However, they’d pay 85% on a smaller benefit. If the person were married, they wouldn’t be taxed at all on those earnings if they worked part-time at $30,000 annually.
Tax Planning Can Help
Zink emphasized the importance of planning ahead if you’re still working at age 65 and plan to collect Social Security benefits to supplement your earned income.
“Retirement account withdrawal management helps control the amount of benefits that becomes taxable,” he said. “Contributing to retirement accounts may also help lower current taxable income. Looking at total income together instead of treating each source separately makes the difference.”
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This article originally appeared on GOBankingRates.com: I’m a Tax Expert: Here’s How Much My 65-Year-Old Working Clients Pay in Social Security Taxes
