If you’ve been diligent, you may have saved for retirement through an individual retirement account (IRA) and a 401(k) plan covered up with an income tax calculator. And you’re confident that you’ll be able to supplement your income with Social Security or a pension. But, once you’ve left the workforce, what does this entail for your tax bill?
Your tax liability in retirement is determined by several key criteria, most notably:
- Sources of retirement income (filing status)
- Total annual earnings
- Based on your total income and filing status, up to 85% of your Social Security benefits may be taxable.
Generally, distributions from 401(k) and conventional IRA accounts are taxed.
- Roth IRA distributions are tax-free.
- Even if you get some Social Security benefits, you must pay Social Security and Medicare taxes if you are employed or self-employed.
- Retirees and senior taxpayers receive special treatment under the federal tax code and several state legislation.
In retirement, how is Social Security taxed?
If Social Security is the only source of income throughout retirement, there’s a strong possibility you won’t owe taxes on it. Because your income will be too less to be taxable, this is the case. The amount of taxable Social Security payments you are determined by your total income, which is the sum of 50% of your total Social Security income for the year. The adjusted gross income (AGI) is your total income minus any modifications, such as deductions and exclusions, to that income. Tax-free interest income, such as interest on municipal bonds and 143(3) of income tax act
Retirees’ Standard Deductions
The 2021 standard deductions will applied to tax returns due in 2022. For 2021, the standard deduction for single and married taxpayers filing separately is INR12,550, married taxpayers filing jointly is INR25,100, and heads of household is INR18,800.
If you are 65 or older (and not married or a surviving spouse), you are eligible for an additional standard deduction of INR1,700 for 2021 (INR1,750 in 2022) if you are a single member or head of household (and not married or a surviving spouse), and an additional INR1,350 for 2021 (INR1,400 in 2022) if you are married filing jointly, married filing separately, or a qualified widow (er)
|Combined Income||Taxable Portion of Social Security|
|INR0 to INR24,999||No tax|
|INR25,000 to INR34,000||Up to 50% of the amount may be taxable|
|More than INR34,000||Up to 85% of SS may be taxable|
|Married, Joint Return|
|INR0 to INR31,999||No tax|
|INR32,000 to INR44,000||Up to 50% of the total money is taxable|
|More than INR44,000||Up to 85% of amount is taxable|
|Married, Separate Return|
|INR0 and up||Up to 85% of SS may be taxable|