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Contributor

Clarity on Working after Full Retirement

I plan on retiring at 66.4 years, take few months off and then begin working as a contractor. I've heard that after FR, I can earn as much as I like. But the question is tax. If I am projected to receive full ben's since I reached FR age, and there's no limited to income, should I only be focus on FED and STATE taxes from earned income? Will my SS bens be taxed also? Can't seem to find a scenario like the following:

  1. Work from Jan 2022 until June 1. 
  2. Earned income for 6 mo, est 50K
  3. Claim SS at FRA 66.4. 
  4. Take 2 or 3 mo's off, then work again PT for remainder of 2022
  5. Estimate for remainder of 2022 year: 50K + 20K=70K
  6. I would have taxes taken out on both incomes and claim in 2023 for 2022 earnings.
  7. Will I pay taxes on earned SS distributions when I file my 2022 taxes since I filed for SS after my FRA?
  8. After 2022, now only working PT, est annual projection 34K of earnings, while claiming SS bens, will I have to pay taxes on SS bens for 2023? 

The working after FRA is confusing when it comes to taxes, and determining if SS bens will be taxed if at all. Thoughts?

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Regular Contributor

These two issues are not related:

when you start taking social security benefits, whether age 62, 66, 70 AND

the issue of how your social security benefits get taxed. 

The taxation of your social security is s function of your income, not your age or anything to do with your FRA.  https://www.irs.gov/pub/irs-pdf/n703.pdf

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Conversationalist

@RichardJ886161 I am providing a link to an article from AARP regarding how your SS Benefits are taxed. https://www.aarp.org/retirement/social-security/questions-answers/how-is-ss-taxed.html Based on the information that you provided, it appears that for 2022 85% of your SS Benefits will be taxable income. However, for 2023, only 50% of your SS Benefits will be taxable income if all of your income (i.e., earnings, interest, dividends, capital gains, etc.)does not exceed $34 K. You can estimate the amount by using the worksheet that @shamit referenced.

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There have been changes that may have an impact on your plan to retire... SSA 2022 changes 

 

Please be sure to read those changes thoroughly; do not lose some benefit due to these changes.

 

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If you look at the instructions for filling out your tax forms there is a worksheet to figure how much of your Social Security benefits will be taxed.  Up to 85% of them can be taxed depending on your other income  My husband collected SS benefits for a year before he retired.  That year the maximum 85% of our Social Security was taxable. 

 

So simply stated "Yes Social Security benefits can be taxed".  My husband waited until 70 to start collecting and he still had to pay taxes on it.  You don't get out of paying taxes on Social Security Benefits just because you reach FRA.  You need to fill out the worksheet to get an idea of how much might be taxed. I know that the instructions for the 2021 are not out yet, but you can still get an approximation by using the worksheet in the 2020 instructions.  I also know this will be for 2022 and 2023.  When the 2021 instructions are out you can fill out the worksheet again.  It will provide a better estimate.  But still an estimate.

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