Personal Finance

My wife and I receive $37,000 per year from Social Security and no other income - how exactly will we be taxed?

Kristin Hitchcock

Published: December 2, 2024 10:13 am

Last Updated: December 2, 2024 1:34 pm

24/7 Wall St. Key Points:

• Understanding how Social Security benefits and taxes work can be complicated! Below, we’ll explore how to calculate your potential tax requirements.
• Only half of your Social Security benefits count towards your combined income. Check out our calculations below to see exactly how this works.
• Also: Take this quiz to see if you’re on track to retire (Sponsored)

Recently, a reader submitted us a question about how Social Security benefits and taxes work for retirees. They asked: “So my wife & I will have $37,000 with half of our SS benefits. The only income for this year will be $15 in savings interest. Other than that no other income. So we will be taxed on 50% of our SS. But if we take the standard deduction which will be over $30,000 this year (we are both over 65), how does that all work out? If we subtract the Standard Deduction from half our SS + the $15 in interest, we will only owe taxes on $6,000 +?”

Let’s break it down, clarify the tax rules, and provide actionable advice for retirees navigating similar scenarios.

1. Understanding Social Security Taxation

Social Security benefits are taxed based on a calculation called “combined income,” which includes:

• Adjusted Gross Income (AGI): In your case, $15 in savings interest.
• Nontaxable Interest: This doesn’t apply here, but for others, think municipal bond interest.
• 50% of SS Benefits: Here, half of your $37,000 benefits equals $18,500.

For a couple filing jointly, if your combined income falls between $32,000 and $44,000, up to 50% of your SS benefits are taxable. Anything over $44,000 increases the taxable portion to 85%. If your income is below $32,000, you don’t have to pay any taxes on your Social Security benefits (as is the case here).

This can change from year to year, so be sure to check every year. Don’t assume that your taxes will fall into the same category as the year before.

2. Adding It All Together

Let’s take this information and apply it to this specific answer:

• Combined Income: $15 (savings interest) + $18,500 (50% of SS benefits) = $18,515

This puts you below the range of Social Security benefit taxation. Remember, when calculating combined income, only half of your Social Security benefits count. So, you only need to add half of your benefits and your small savings interest.

Your taxable income would only be the $15 in savings interest. However, this is far below standard deduction rates, so you likely won’t have to pay any taxes.

3. Applying the Standard Deduction

Your taxable income would only be the $15 in savings interest. Since both you and your spouse are over 65, your standard deduction for 2024 is likely $30,700 (for married filing jointly). This deduction offsets your taxable income.

• Taxable Income After Deduction: $15 – $30,700 = $0.

You’ll likely have to pay no federal income tax this year. However, there are other things that can impact your tax obligations, so be sure to work with a tax professional and consider any other sources of income you might have.

4. Actionable Advice for Retirees

Based on the math here, your standard deduction would eliminate all taxable income. Even if no taxes are owed, though, you’ll need to file taxes. You may also qualify for some tax credits, which may mean getting money back on your taxes.

When calculating your taxes in retirement, it’s important to remember that only 50% of your Social Security benefits count when calculating combined income. Then, depending on your combined income, you’ll fall into a certain range, determining how much of your SS benefits are taxable.

If possible, plan withdrawals from taxable accounts in years where you already have significant income to avoid crossing tax thresholds. You preferably want to stay below the 85% threshold, which isn’t any problem here (but it may be for other readers).