Is Social Security Considered Earned Income?

Social Security benefits are a significant source of income for many retirees and individuals with disabilities.

social security

However, when it comes to taxes, there's often confusion about whether Social Security benefits are considered earned income. In this article, we'll delve into this question and provide clarity on the matter.

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What is Earned Income?

Earned income typically refers to income derived from employment or self-employment. This includes wages, salaries, bonuses, and income from freelance work or business activities.

Earned income is subject to various taxes, including income tax and payroll taxes such as Social Security and Medicare.

Is Social Security Considered Earned Income?

No, Social Security benefits are not considered earned income. Instead, they fall under the category of unearned income. Unearned income includes sources such as pensions, interest, dividends, and Social Security benefits.

Unlike earned income, unearned income is not subject to payroll taxes like Social Security and Medicare.

Taxation of Social Security Benefits

While Social Security benefits are not considered earned income, they may still be subject to federal income tax, depending on your total income. If your combined income exceeds a certain threshold, a portion of your Social Security benefits may be taxable.

Combined income is calculated by adding your adjusted gross income, nontaxable interest, and half of your Social Security benefits. The following thresholds determine whether your benefits are taxable:

  • Single filers with combined income between $25,000 and $34,000 may have to pay income tax on up to 50% of their Social Security benefits.
  • Single filers with combined income exceeding $34,000 may have to pay income tax on up to 85% of their Social Security benefits.

For married couples filing jointly:

  • Couples with a combined income between $32,000 and $44,000 may have to pay income tax on up to 50% of their Social Security benefits.
  • Couples with a combined income exceeding $44,000 may have to pay income tax on up to 85% of their Social Security benefits.

In summary, Social Security benefits are not considered earned income but fall under the category of unearned income. While they are not subject to payroll taxes like earned income, they may be subject to federal income tax, depending on your total income.

Understanding the tax implications of Social Security benefits is crucial for effective tax planning and financial management during retirement.

If you have questions about how your Social Security benefits may affect your taxes, consider consulting with a qualified tax professional for personalized guidance.

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