Ask the Experts: Do I have to pay federal income tax on my Social Security income?

Q. I'm collecting Social Security and working part-time. My total income is below $25,000.  Do I have to pay federal income tax on my Social Security income?

A. Two factors determine whether you must pay taxes on your Social Security benefits: how you file your taxes -- individually or jointly -- and the amount of your “combined income.” Your combined income is defined as the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefit. Individual filers might have to pay taxes on 50 percent of their Social Security benefits if their combined income is between $25,000 and $34,000. Joint filers might have to pay taxes on 50 percent of their benefit if their combined income is between $32,000 and $44,000. Individual filers who have combined incomes above $34,000 and joint filers with combined incomes above $44,000 might have to pay taxes on up to 85 percent of their Social Security benefits. To learn more about taxes and retirement benefits, go to the Social Security Administration online and read “Publication No. 05-10035. Retirement Benefits,” at www.socialsecurity.gov/pubs/10035.html.  

Q. If my wife begins collecting Social Security based on her record now, can she change to collect spousal benefits based on my record when I retire in a few years?

A. Generally speaking, a wife is eligible to receive a spousal benefit that is 50 percent of her husband’s benefit if he receives it at full retirement age. If the wife takes her benefits early, or before full retirement age, her spousal benefit will be less than 50 percent of her husband’s benefit. However, if a wife waits to collect Social Security until her full retirement age, she will also be entitled to up to 50 percent of her husband’s benefit when he retires—if her husband’s benefit is larger than hers. For more information on spousal benefits and to calculate how taking early retirement benefits will affect you, go to the Social Security Administration online at www.socialsecurity.gov/OACT/quickcalc/spouse.html#calculator.   

Q. If I opt to collect Social Security now, at age 62, how much will it reduce my benefit? How much more will I get if I wait another four years?

A. Since you were born in 1946, you will be eligible to collect full retirement benefits at age 66. Those born between 1943 and 1954 who take benefits at 62 will have their payments permanently reduced by 25 percent. So a person who is eligible for a $1,000 benefit at the full retirement age of 66, for example, will receive only $750 a month if starting benefits at age 62. To calculate benefits, go to the Social Security Administration online at www.ssa.gov/retire2/agereduction.htm. 

Source: John Turner.