Social Security benefits are paid mainly to retired workers, their surviving spouses and minor children, and people who cannot work due to disability. For retirees, the amount of benefits depends on several factors, including earnings history and age at retirement. Income that workers obtain through investments and other sources outside of wages or self-employment does not affect the amount of the eventual benefit.
Retirement earnings can affect benefits.
For recipients, the age at retirement is a significant part of the benefit calculation. In addition, age influences whether recipients will receive reduced benefits to offset earned income. Beneficiaries who are below full retirement age will experience a benefit reduction if their earnings exceed the threshold. In the years before you reach full retirement age, the threshold is $21,240 (currently). If you earn more than that, your benefits will be reduced by an amount equal to 50 percent of the income above the threshold.
In the year you will reach full retirement age, you can still see a benefit reduction for earnings, but the threshold is higher ($56,520), and the reduction is less (33 percent instead of 50). However, once a recipient reaches full retirement age (your full retirement age depends on your birth year, but for many people, it is 67 or 68), earnings do not affect benefits.
Furthermore, capital gains are not included in the income that Social Security uses to calculate the threshold. Also excluded are investment income, pensions, retirement account withdrawals, interest, and dividends. Only your earnings from working or self-employment are considered income for this purpose, so earning a capital gain will not result in a benefit reduction.
Capital gains could require you to pay taxes on benefits.
While capital gains income will not result in a reduced benefit, it may determine whether you must pay taxes on those benefits. More than half of Social Security recipients pay some income taxes on their benefits. Whether you do and how much depends on your AGI (adjusted gross income) and how much you receive in benefits.
To determine the amount of what Social Security calls your combined income, add your AGI, interest income, and half of your benefit amount. Your gross income includes the following:
- Salary or wages
- Capital gains
- Business income
- Investment earnings
- Dividends
- Alimony
- Retirement account distributions
Suppose you file as part of a married couple with a gross income (including some capital gains) of $50,000 and receive $36,000 in annual Social Security benefits. Your combined income is $68,000 (gross income and half of the benefit amount), which means you will pay income taxes on 85 percent of your benefits.
If the married couple had a combined income between $32,000 and $44,000 (for example, with a gross income of $22,000 and $20,000 in benefits), they would owe taxes on 50 percent of their benefit amount. However, if the combined income is below $32,000, the couple will not pay taxes on any benefits.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
Hypothetical examples shown are for illustrative purposes only.
FAQs
Income that comes from something other than work, such as pensions, annuities, investment income, interest, IRA and 401(k) distributions, and capital gains is not counted toward the earnings limit and will not affect your benefit.
Do capital gains impact Social Security? ›
Capital gains do not affect Social Security benefits.
Capital gains and other kinds of income- rental payments, inheritances, pensions, interest, or dividends—do not reduce your Social Security payments. So, selling investment property may leave you with a tax bill but won't affect your SSA benefits.
What counts as income for a Social Security earnings test? ›
They also include bonuses, commissions, and vacation pay. Social Security doesn't count pensions, annuities, investment income, interest, veterans' benefits, or other government or military retirement benefits.
How long does selling property affect Social Security? ›
Selling Your Home While on Social Security Benefits
After you sell your home, you have three months to buy a new home. If you buy a new house in those three months and still have less than $2,000 in assets, you'll retain your benefits.
What kind of income reduces Social Security benefits? ›
When we figure out how much to deduct from your benefits, we count only the wages you make from your job or your net earnings if you're self-employed. We include bonuses, commissions, and vacation pay.
Do capital gains count as income? ›
Capital gains are generally included in taxable income, but in most cases, are taxed at a lower rate. A capital gain is realized when a capital asset is sold or exchanged at a price higher than its basis.
Does the sale of property count as income for Social Security? ›
Generally, the IRS expects you to report your home sale if you received a 1099-S. if your gain is below $250,000 (500,000 is married) and you meet the other conditions, then all the gain is not eligible for taxation and your tax is zero. your Social security will not be impacted.
What income is not counted by Social Security? ›
Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes.
What types of income do you have to report to Social Security? ›
You must report your monthly wages and changes in income from other sources to get accurate monthly SSI payments. If you live with your spouse, you must also report their income.
What is considered substantial earnings for Social Security? ›
Substantial earnings are defined as $31,275 or more for 2024 (up from $29,700 for 2023). This exemption generally applies to retirees who started a second career after their first retirement. It may also benefit those who have changed jobs midway through their career. You were eligible for pension payments before 1986.
Social Security will take into consideration the amount of your assets, because it is a needs-based program. To be eligible for SSI, your assets must be less than $2,000 for an individual and less than $3,000 for a married couple.
Does real estate income count against Social Security? ›
Rental income you receive from real estate does not count for Social Security purposes unless: You receive rental income in the course of your trade or business as a real estate dealer (see §§1214-1215); Services are rendered primarily for the convenience of the occupant of the premises (see §1218); or.
What is the 10 year rule with Social Security? ›
If you've worked and paid taxes into the Social Security system for at least 10 years and have earned a minimum of 40 work credits, you can collect your own benefits as early as age 62. We base Social Security benefits on your lifetime earnings.
Do capital gains reduce Social Security benefits? ›
However, once a recipient reaches full retirement age (your full retirement age depends on your birth year, but for many people, it is 67 or 68), earnings do not affect benefits. Furthermore, capital gains are not included in the income that Social Security uses to calculate the threshold.
How much money can I earn without affecting my Social Security? ›
If you're younger than full retirement age, there is a limit to how much you can earn and still receive full Social Security benefits. If you're younger than full retirement age during all of 2024, we must deduct $1 from your benefits for each $2 you earn above $22,320.
What would cause my Social Security benefits to decrease? ›
We reduce your benefits if you start early by about 0.5 percentage points on average for each month you start receiving benefits before your full retirement age. For example, if your full retirement age is 67, and you sign up for Social Security when you're 62, you would only get about 70% of your full benefit.
Do capital gains count as income in retirement? ›
Capital gains and dividends
Fully taxable investment vehicles and accounts, such as stock, bonds, and mutual funds are taxed the same whether you're retired or still employed.
Do capital gains impact Medicare premiums? ›
Answer: A big-enough capital gain can trigger Medicare's income-related adjustment amount, which are surcharges on your Part B and Part D premiums. As you note, there's a two-year delay between the higher income on your tax returns and higher premiums.
Are capital gains provisional income for Social Security? ›
Your provisional income is based on half of your Social Security benefits, plus other sources that contribute to your adjusted gross income, including wages from a job, withdrawals from traditional tax-deferred accounts, and dividends, interest and capital gains from taxable investment accounts.
What income is included in Social Security wages? ›
Wages include salaries, commissions, bonuses, severance pay, and any other special payments received because of your employment.
