Do I Have to Pay Taxes on Social Security After Age 66? The Complete Truth

If you’ve reached the age of 66 and are now collecting Social Security benefits, you might be wondering if Uncle Sam is still gonna take a bite out of your hard-earned benefits The short answer? Probably. But it’s not as simple as you might think

I’m gonna break down exactly what you need to know about paying taxes on Social Security after age 66 (or whatever your full retirement age happens to be). There’s a lot of misinformation out there, so let’s set the record straight.

The Myth of Tax-Free Social Security at Age 66

First, let’s address the big myth that many retirees believe: Social Security is NOT automatically tax-free once you reach age 66, 70, or any other age.

No matter what your neighbor at the community center may have told you, you may have to pay taxes on your Social Security benefits, no matter what age you are. The deciding factor isn’t your age – it’s your income.

As TurboTax clearly states: “Social Security is taxed at any age if your income exceeds a certain level.” This is super important to understand before you make any retirement planning decisions.

How the IRS Decides If Your Social Security Gets Taxed

The IRS uses something called “combined income” (also known as “provisional income”) to figure out if your benefits are taxable. Here’s how they calculate it:

Combined Income = Adjusted Gross Income + Nontaxable Interest + 1/2 of Social Security Benefits

Based on this formula, here’s when your Social Security becomes taxable:

For Individuals Filing Single:

• Combined income between $25,000 and $34,000: Up to 50% of benefits may be taxable
• Combined income above $34,000: Up to 85% of benefits may be taxable

For Married Couples Filing Jointly:

• Combined income between $32,000 and $44,000: Up to 50% of benefits may be taxable
• Combined income above $44,000: Up to 85% of benefits may be taxable

To be clear, that doesn’t mean you pay 20% or 85% of your benefits in taxes. That means that part of your benefits is taxed at the same rate as your regular income.

What Happens If You’re Still Working After 66?

Many of us continue working past our full retirement age these days. If that’s you, here’s what you need to know:

1. You’ll still pay Social Security taxes on your earnings – Everyone working in covered employment or self-employment must pay Social Security taxes regardless of age, according to the Social Security Administration.

2. Your benefits won’t be reduced due to earnings – Once you reach full retirement age, there’s no limit to how much you can earn while receiving full Social Security benefits. This is different from taking benefits early.

3. Working may increase your future benefits – Continuing to work and pay Social Security taxes could potentially increase your benefit amount in the future.

4. But your current benefits might get taxed more – Higher income from working could push more of your Social Security benefits into taxable territory.

Calculating Your Taxable Benefits – An Example

Let’s look at a simple example to make this clearer:

Imagine you’re 68, single, and have:

• $20,000 in Social Security benefits
• $30,000 in pension income
• $5,000 in interest from investments

Your combined income would be:

$30,000 (pension) + $5,000 (interest) + $10,000 (half of Social Security) = $45,000

Since your combined income exceeds $34,000 as a single filer, up to 85% of your Social Security benefits ($17,000) could be subject to income tax at your normal tax rate.

State Taxes on Social Security – Another Thing to Consider

While we’ve been talking about federal taxes, don’t forget about state taxes! The good news is that most states don’t tax Social Security benefits. According to Investopedia, Social Security benefits aren’t subject to state income tax in 39 states.

If you live in one of these 11 states that do tax Social Security (at least in some situations), you’ll need to consider that in your tax planning:

• Colorado
• Connecticut
• Kansas
• Minnesota
• Missouri
• Montana
• Nebraska
• New Mexico
• Rhode Island
• Utah
• Vermont

Each state has different rules about exemptions and income thresholds, so check with your state tax agency for details.

Strategies to Reduce Taxes on Your Social Security Benefits

Now for the part everyone wants to know – how can you minimize taxes on your Social Security? Here are some strategies that might help:

1. Manage Your Retirement Withdrawals

Be strategic about which accounts you withdraw from and when. Sometimes spreading withdrawals across different account types (traditional IRA, Roth IRA, taxable accounts) can help keep you in a lower tax bracket.

2. Consider Converting to Roth

Converting some traditional IRA assets to a Roth before you start taking Social Security might help reduce your taxable income during retirement years.

3. Minimize Reportable Investment Income

Investopedia suggests converting reportable investment income into tax-deferred income, such as from an annuity. For example, if you have $200,000 in CDs earning 3% ($6,000 annually), that counts toward your provisional income. But the same $200,000 growing inside an annuity with interest reinvested won’t show up in the provisional income calculation.

4. Work a Little Less

If you’re almost at the point where your benefits are taxed, cutting back on work hours might help you save money on taxes.

5. Make Charitable Donations Directly from Your IRA

You can make qualified charitable distributions directly from your IRA if you are over 70½. These won’t count toward your taxable income.

6. The New Senior Deduction

According to TurboTax, the recent “One Big Beautiful Bill” includes a temporary Senior Deduction of up to $6,000 per person for tax years 2025 through 2028. This applies to seniors 65 and older, depending on filing status and income level. This deduction phases out beginning at $75,000 Modified Adjusted Gross Income for singles and $150,000 for married filing jointly.

When Seniors Need to File a Tax Return

Even if you’re retired, you may still need to file a tax return. For tax year 2024:

• If you’re single and 65 or older: You need to file if your gross income is $16,550 or more
• If you’re married filing jointly and both 65 or older: You need to file if your combined income is $32,300 or more
• If you’re married filing jointly and only one spouse is 65+: File if income is $30,750 or more

But here’s an important exception – if your only income is from Social Security and it’s less than $50,000 per year, you typically don’t need to file a tax return because none of your benefits would be included in gross income.

Tax Withholding Options for Social Security

If you’re concerned about owing taxes on your Social Security benefits, you can have taxes withheld directly from your payments. You have two options:

1. Use IRS Form W-4V to request voluntary withholding at a rate of 7%, 10%, 12% or 22%

2. Sign in to your personal my Social Security account to check, start, change, or stop your Voluntary Tax Withholding online

Having taxes withheld can help prevent an unexpected tax bill when you file your return.

A Special Note for Those Filing as Married Filing Separately

Be careful if you’re married but file a separate tax return and live with your spouse at any time during the year. In this case, 85% of your Social Security benefits are automatically included in your gross income for taxes, which may require you to file a tax return regardless of income level.

What About the Tax Credit for Seniors?

There’s a special tax credit available for people 65 and older called the “Credit for the Elderly or Disabled.” If you qualify, this credit can reduce your tax bill on a dollar-for-dollar basis. The credit is available to those with relatively low incomes from sources other than Social Security.

The Reality Check: Most Retirees Do Pay Some Tax

I hate to be the bearer of bad news, but the truth is that most retirees with decent retirement income do end up paying some tax on their Social Security benefits. With proper planning, however, you can minimize this tax burden.

Final Thoughts – Planning is Key

Understanding how your Social Security benefits are taxed after age 66 is essential for effective retirement planning. While you can’t completely avoid paying taxes in most cases, strategic planning can help minimize your tax burden.

Remember these key points:

• Your age doesn’t determine if benefits are taxed – your income does
• Up to 85% of benefits may be taxable at regular income tax rates
• Working after full retirement age means you’ll still pay Social Security taxes on earnings
• State taxation varies, with most states not taxing Social Security
• Tax planning strategies can help reduce the taxable portion of your benefits

We all want to keep as much of our hard-earned money as possible. With some careful planning and maybe help from a tax professional, you can make sure you’re not paying more than your fair share.

What’s your experience been with Social Security and taxes? Have you found strategies that work for keeping more of your benefits? I’d love to hear your thoughts!