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There are many benefits to working in your later years. The job provides socialization and mental stimulation. But many retirees don’t want to be tied into a steady schedule or work commitment. Their health may also prevent them from working the prescribed hours. An extra effort may be the right solution, especially for retirees ages 75+.
While extra pocket cash can also help boost investment income and Social Security benefits, there are also financial implications to consider, positive and negative.
No impact on Social Security checks
First, let’s explore a common myth that retirees often believe about taking on a side gig or even a W-2 job: how it affects your Social Security income.
“Working past age 75 doesn’t reduce your Social Security check,” said George Dimov, founder and CEO of . dimov tax. “The earnings test ends when you reach full retirement age.”
People who are 75 years old today reached FRA at the age of 66, so this is the concern behind them.
“There are no benefit cuts, no penalties for working, and no earnings limits for 75-year-olds, no matter how much money they make on their own,” said Cody Schuiteboer, president and CEO of 75-Year-Olds. best interest financial.
The increased income may exceed the tax limit
Although your monthly Social Security benefits will not be reduced, your tax bill may increase with a successful additional hustle.
“Up to 85% of your Social Security benefits may be taxable,” Dimov said.
“If you’re married and earning a combined income of less or more than $32,000, filing jointly, your Social Security benefits will be taxed at 50%,” explained Melanie Musson, finance expert. clearsurance.com. “If you’re making $44,000 and are married, filing jointly, you could be taxed at 85%.”
If you’re close to these limits and have an additional program that won’t impact your monthly budget or lifestyle, but could increase your taxable income, it may be worth considering volunteering instead. You’ll get out of the house and find the same sense of purpose, without the tax impact.
If you’re already above the limit based on Social Security and investment income, this is of less concern.
Likewise, if your side gig pushes you into a higher tax bracket, it may not be worth it. You’ll lose benefits like Roth IRA conversions and pay a higher marginal tax rate.
“Use the IRS calculator to help you determine how much you can make without being taxed on your benefits and income,” Musson said.
Consider Self-Employment Taxes
There’s another tax surprise that gig workers should be aware of: self-employment taxes.
“If you have a side job where you get a 1099 form and not a W-2 form, you have to pay 15.3% in self-employment taxes in addition to your income tax,” Dimov said.
He said seniors working side gigs should make sure to take the 20% qualified business income (QBI) deduction, which is part of the Tax Cuts and Jobs Act. But even with this cut back, working a side gig can create additional stress at times.
“If a 75-year-old makes $20,000 doing 1099 work, he or she will have to pay self-employment taxes of about $3,060 before paying anything related to the income,” Schuiteboer said.
He advised that retirees may be better off working a W-2 job rather than running around on extra ground.
However, for retirees who want to set their own hours or are hesitant to answer to a “boss” after years in the workforce, the tax savings of a W-2 job may not be worth it.
Understand IRMAA
If your extra hustle affects your Medicare premiums, you may feel the impact of the extra income even before tax time.
Individuals with modified adjusted gross income (MAGI) above a certain amount are subject to the Income Related Monthly Adjustment Amount (IRMAA) program, which increases Medicare Part B and Part D premiums for the next two years.
“People…don’t see this happening very often,” Dimov said.
“The IRMA limits are very stringent, and the cost of an additional thousand dollars in increased premiums can be quite high,” Schuitebauer said.
W-2 or side hustle?
Whether you are working after age 75 for personal fulfillment or financial reasons, it is prudent to discuss your decision with a financial advisor or tax professional. Some retirees may find a W-2 job more profitable.
“Seniors who work for other reasons, such as social connections, something to look forward to every day, and a sense of purpose… will always find extra movements beneficial because these reasons add up to something invaluable,” Schuiteboer concluded.