According to the Bureau of Labor Statistics, workers age 55 and older are working 42 percent more part-time hours than they were 10 years ago.
Unfortunately, if you are collecting Social Security benefits, that side job you took to help pay the bills could increase your tax bill. An unwelcome surprise to people who are just trying to make ends meet.
See Also: Is Social Security Taxable?
For many people, their Social Security benefits may never be subject to income tax. However, if you have other income, whether it’s from a pension, investments, or a part-time job, some of your Social Security may be taxable.
Here’s how it works: If are single and your combined income (your adjusted gross income plus one half of your Social Security) is more than $25,000 then you’ll owe tax on up to 50% of your Social Security benefits. If you are married, you can have up to $32,000 of combined income before your benefits are taxable.
But wait… It gets even worse if your income is even higher than the amounts discussed above. Single taxpayers who have a combined income of $34,000 or higher will pay taxes on up to 85% of their Social Security benefits. For married taxpayers the magic number is $44,000 or higher.
Just to be clear, you’re not losing 50% or 85% of your benefits if you work, it just means that up to that amount will be subject to income taxes.
That leads into another concern you should have if you are retired and going back to work. If you are collecting Social Security benefits but you have not yet reached your full retirement age, then your benefits could be reduced if you earn too much.
In 2013, you can earn up to $15,120 and still receive benefits without being penalized. However, for every $2 you earn above that limit, Social Security will reduce your benefits by $1.
If you happen to turn your full retirement age (age 66) during 2013, you can earn up to $40,080 until the month you reach full retirement age. Social Security will reduce your benefits by $1 for every $3 you earn over the limit during the year you turn full retirement age.
So what can a retiree do? Well, if possible, your best strategy is to delay your Social Security benefits as long as possible. This will reduce the chances that your benefits will be taxable as well as minimizing the penalty for working and collecting benefits before you reach full retirement age.
Other benefits of delaying your Social Security retirement benefits include a higher benefit when you do finally apply, which in turn means the less you will need to pull from your retirement accounts to help cover living expenses.