Social Security taxes: If you continue to work while receiving Social Security, your benefits might be taxed based on your combined income. For example, if your combined income exceeds certain thresholds ($25,000 for individuals or $32,000 for married couples filing jointly), up to 85% of your benefits could be taxable.
Tax bracket: Your combined income from Social Security, pensions, investments and new employment may push you into a higher tax bracket, increasing your overall tax liability. This could lead to a higher marginal tax rate on your earnings and impact other aspects of your financial plan.
State income taxes: Retirees working part-time or full-time may need to pay state income taxes on their earnings, depending on where they live and work. Some states tax Social Security benefits and other retirement income, which can add another layer of complexity to your tax situation. Understanding the state-specific tax rules is essential for accurate tax planning.
Required minimum distributions (RMDs): If you have retirement accounts such as a 401(k) or traditional IRA, RMDs must still be taken after reaching age 73 (age 75 if you turn 74 after Dec. 31, 2032). These distributions are taxed as ordinary income and, when combined with employment income, can significantly increase your taxable income. Failing to take RMDs can result in substantial penalties, adding to your financial burden.