At 73 and Still Working, Can You Avoid Taxes on Social Security?
A 73-year-old full-time worker worries about an unexpected tax bill on Social Security benefits. Here's what the rules mean for working retirees.
For millions of older Americans who continue working well into their seventies, the intersection of earned income and Social Security benefits creates a tax puzzle that can feel surprisingly punishing. A 73-year-old full-time worker recently raised a concern that resonates with a growing segment of the workforce: when you are earning more than ever before while simultaneously collecting Social Security, how do you avoid a costly surprise at tax time?
The core issue is what the IRS calls "combined income" — a formula that adds adjusted gross income, nontaxable interest, and half of your annual Social Security benefit. Once that combined figure crosses certain thresholds, a portion of your Social Security becomes subject to federal income tax. For individuals, up to 50% of benefits may be taxable above one threshold, and up to 85% above a higher one. Those thresholds have not been adjusted for inflation in decades, meaning more retirees are ensnared each year simply by earning more or receiving cost-of-living adjustments to their benefits.
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For someone still pulling a full-time paycheck at 73, the math can work against them quickly. Strong earned income almost certainly pushes combined income well past the upper threshold, meaning the maximum 85% of Social Security benefits are likely already taxable. The uncomfortable reality is that there is no straightforward exemption for working retirees — the tax code does not reward continued workforce participation with a Social Security carve-out.
That said, strategic planning can soften the blow. Contributing to a traditional 401(k) or other pre-tax retirement account reduces adjusted gross income, which in turn lowers combined income. Timing of other income — such as investment withdrawals or Roth conversions — can also be managed across tax years to limit exposure. Consulting a tax professional who specializes in retirement income is particularly valuable for workers in this situation, where multiple income streams interact in ways that standard withholding may not fully capture.
The broader lesson for working retirees is that proactive quarterly estimated tax payments or adjusting W-4 withholding can prevent an unwelcome bill in April. Awareness of the combined-income formula is the first line of defense. Continue reading at MarketWatch.com.
