For numerous seniors, Social Security serves as a crucial income stream, yet there are various factors that may lead retirees to lose part of their benefits. A recent survey revealed that merely 48% of participants were aware that Social Security benefits are subject to taxation. Whether you owe taxes on your Social Security income is determined by your combined income, which consists of your adjusted gross income, nontaxable interest income, and half of your Social Security benefits.
When your combined income surpasses specific limits, a portion of your benefits becomes taxable. For individual filers, if your combined income totals less than $25,000, you will not owe taxes on any of your benefits. If it falls between $25,000 and $34,000, up to 50% of your benefits may be taxed.
Should your income exceed $34,000, as much as 85% could be taxable. For married couples filing jointly, if your combined income is under $32,000, none of your benefits will be taxed. If it ranges from $32,000 to $44,000, you may face taxation on up to 50% of your benefits.
When your combined income exceeds $44,000, up to 85% could incur taxes.
Methods how retirees can lose benefits
Another reason retirees might forfeit some of their Social Security benefits is if they continue to work while receiving them.
Only 54% of those surveyed understood that benefits could be withheld if they were still employed while collecting Social Security. In 2024, the retirement earnings test results in a $1 deduction from your monthly benefit for every $2 you make beyond $22,320. For individuals reaching full retirement age this year, the limit increases to $59,520, with benefits reduced by $1 for every $3 earned over that amount.
Nevertheless, the Social Security Administration adjusts your benefit payments once you reach full retirement age to account for any withheld amounts. Additionally, if you are receiving spousal benefits, your payments depend on your spouse’s continued receipt of their Social Security benefits. If your spouse decides to suspend their benefits, it may lead to a reduced benefits check for you.
A vital requirement for spousal benefits is that the primary earner must also be collecting Social Security for the spouse to qualify. Should your spouse retract their application or suspend benefits, you may have to revert to receiving benefits based on your own earnings record, which could be considerably lower—or even $0—based on your employment history.
Navigating the intricacies of Social Security can be complicated, but being informed and planning carefully are essential for maximizing your benefits and ensuring financial security during retirement.
