Q:

How does additional taxable income affect Social Security?

A:

Quick Answer

Social Security does not decrease benefit payments for individuals earning additional taxable income if they are at full retirement age, notes the Social Security Administration. People not yet at full retirement age have their benefits reduced if their extra income exceeds the yearly earnings limit.

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How does additional taxable income affect Social Security?
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Full Answer

In the year an individual reaches retirement age, Social Security deducts $1 for every $3 earned over the yearly income limit. Prior to full retirement age, Social Security deducts $1 for every $2 earned over the limit. As of 2015, the annual earnings limit is $15,720 for individuals under full retirement age and $41,880 for the year in which the individual reaches full retirement, according to the Social Security Administration. Full retirement age is 67 for people born after 1959.

Although earning additional income may decrease a person's Social Security benefits, Social Security benefits may increase if current earnings are greater than those used to calculate the initial benefit. This is because individuals must pay Social Security and Medicare taxes on their current income, explains the AARP. Income that affects Social Security benefits includes wages, commissions, bonuses and self-employment income. Interest earnings, inheritances and capital gains do not count toward the yearly income limit for benefits.

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