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At what age is Social Security no longer taxed in the US?

Every year the SSA announces a COLA increase for benefits. While that helps keep pace with inflation it means more beneficiaries may have to pay taxes.

Over half of Social Security beneficiaries face tax burden

Social Security benefits are modest compared to past earnings of recipients, so the annual cost-of-living adjustment (COLA) increase is vital to help the monthly payments keep pace with inflation. However, as the dollar amount that beneficiaries receive inches upward they could be in for a rude surprise; they may surpass thresholds established, above which a portion of their Social Security income becomes taxable.

Before 1984, Social Security benefits were not taxed. However, to keep the Trust Fund that supports the program solvent, bipartisan legislation was passed to tax a portion of payments to seniors citizens, surviving spouses, and the disabled if they had income above certain thresholds.

At the onset, less than one in ten beneficiaries paid income tax on their benefits. But that percentage has risen over time. Unlike benefits, the thresholds were not indexed to inflation and in the intervening four decades no inflation adjustments have been made. This meant that as benefits rose, more recipients crossed over the thresholds. Now 56 percent of beneficiaries pay income tax on a portion of their benefits, sometimes as much as 85% if their total income exceeds upper thresholds.

There is no age at which you will no longer be taxed on Social Security payments. So, if those payments when combined with your other forms of income, exceed one of the two thresholds, then you will have to pay at least federal taxes on either 50% or 85% of the benefits you receive. At the state level, there are only nine that currently tax Social Security benefits.

How are Social Security payments taxed?

The tax rate for Social Security benefits varies based on the taxable household income of recipients. As well, one’s tax bracket is dependent on the filing status of the Social Security recipient.

Individuals with a Total Gross Income, including Social Security, of more than $25,000 will be taxed on up to 50 percent of their Social Security income. Couples who file jointly will begin being taxed when their total income exceeds $32,000.

Individuals earning more than $34,000, or couples with a combined gross income of at least $44,000, will be taxed on up to 85 percent of their Social Security benefits.

Typically it is only retirees, who have very little household income aside from their Social Security entitlement, who could be exempt from any form of taxation on the payments.

How is the Social Security tax rate calculated?

The rate of taxation levied on Social Security payments is similar to that of other forms of income. Filers must submit their adjusted gross income, which combines their salary, Social Security benefits and all other sources of taxable income. If that total exceeds the minimum threshold then at least 50 percent of your Social Security benefits will be considered taxable income and will be treated as such.