How to avoid huge tax bills when working past FRA and collecting Social Security at 70?

You're smart to plan ahead! I'm 70, started collecting at 68 and still work as a consultant about 20 hours/week. Here's what's worked for me: 1. I increased my withholding at work to cover the additional tax on my SS benefits. You can use the IRS withholding calculator to estimate how much extra you should withhold. 2. I make quarterly estimated tax payments as a backup, especially in quarters where I earn more than usual. 3. I maximized my 401(k) contributions to reduce my taxable income, which in turn reduced how much of my SS benefits get taxed. Remember that it's your "combined income" (adjusted gross income + nontaxable interest + half of SS benefits) that determines taxation. Keep that number as low as possible through deductions and you'll minimize how much of your benefits get taxed.

Ugh, I wish someone had warned me about this!! I'm 68, started SS at FRA (66+4mo) and kept working full time. First tax season was a NIGHTMARE! Ended up owing $4,800!!! 😡 Had no idea so much of my SS would be taxable when combined with my salary. Now I have extra withholding from my paychecks ($275 additional per paycheck) AND still do quarterlies just to be safe. My accountant set it all up. DEFINITELY talk to a tax person before you start collecting!!

Working past FRA while collecting Social Security creates a specific tax situation that requires planning. Here's what you need to know: - Up to 85% of your Social Security benefits become taxable when your provisional income (AGI + 50% of SS benefits + tax-exempt interest) exceeds $34,000 (single) or $44,000 (married). - When you're working AND collecting, you're almost guaranteed to hit those thresholds. - Your best options are increasing your withholding at work or making quarterly estimated payments. - Consider tax-advantaged investments that won't increase your provisional income. - Roth conversions before you start collecting can be strategic - pay taxes now to reduce RMDs later. Your plan to delay until 70 is financially sound. The 8% per year delayed retirement credits will significantly increase your lifetime benefit.

I struggled for MONTHS trying to reach someone at SSA to explain exactly how taxes would work when I started benefits while working. Called dozens of times, always disconnected or waiting for hours. Finally used a service called Claimyr (claimyr.com) to get through to an agent in under 30 minutes. They have a video showing how it works: https://youtu.be/Z-BRbJw3puU The SSA representative walked me through the tax withholding options on my benefits and explained exactly how the provisional income calculation would affect me. You can elect to have federal taxes withheld directly from your SS payments (7%, 10%, 12%, or 22%) which helped me avoid a big tax surprise. Highly recommend getting this info directly from SSA before you start benefits!

I'm 69 and work part time while getting SS. Talk to ur CPA thats what there for! Mine told me to put 12% withholding on my SS check AND extra $$ from my paycheck. Still had to pay a little at tax time but not much. Every situation different tho.

does anyone know if state taxes are different? my uncle lives in colorado and says he doesnt pay state tax on his ss but has to pay federal. im in illinois and not sure how it works here

My sister stared working at Walmart after she got her SS at 68 and had to pay back $2600!!! They never tell you that you will owe taxes. She had to set up a payment plan with the IRS.

Thank you all for these incredibly helpful responses! I'm definitely going to: 1) Talk to a CPA about my specific situation, 2) Consider increasing my workplace withholding once I start benefits, 3) Set up withholding directly from my SS payments, and 4) Look into quarterly payments as a safety net. I'm so glad I asked this question before I actually started benefits. Sounds like planning ahead is crucial to avoid tax surprises!

Another thing to consider is timing your income if you have flexibility with your part-time work. Since you're already at FRA and planning to delay until 70, you might want to look at spreading out any bonuses or consulting income across tax years to keep your provisional income more manageable. I'm 71 and wish I had known about the "tax torpedo" effect - where each additional dollar of income can cause more of your SS to become taxable, creating an effective marginal tax rate higher than your actual bracket. A tax professional can help you model different scenarios and find the sweet spots for income timing. Also worth noting: if you're still contributing to an HSA (if eligible), those contributions reduce your AGI and can help keep more of your SS benefits tax-free. Every little bit helps when you're juggling work income and benefits!

As someone who just turned 68 and went through this exact situation last year, I can't stress enough how important it is to run the numbers BEFORE you start collecting. I used the IRS Tax Withholding Estimator tool online and it was a real eye-opener - showed me exactly how much extra I needed to withhold. One thing I wish I'd known earlier: if you're doing contract or freelance work on top of your regular job, you'll likely need to make quarterly payments anyway for that income. So it might make sense to just include the SS tax burden in those quarterlies rather than trying to juggle multiple withholding sources. Also, keep detailed records of everything! When tax time comes, having all your SS statements, pay stubs, and quarterly payment receipts organized will make your CPA's job (and your life) much easier. The peace of mind is worth every penny you spend on professional tax help during this transition.

I'm in a similar boat - 66 and planning to work part-time while delaying SS until 70. This thread has been incredibly eye-opening! I had no idea about the provisional income thresholds or that you could have taxes withheld directly from SS payments. One question for those already navigating this: how do you handle the timing if your part-time income varies significantly month to month? I'm planning to do seasonal consulting work, so some quarters will be much higher income than others. Should I base my withholding/quarterly payments on my highest earning quarters to be safe, or is there a better way to smooth this out? Also, has anyone found good resources for modeling different scenarios? I keep seeing mentions of various calculators but would love specific recommendations for tools that handle the SS taxation piece well.