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Will You Pay Taxes During Retirement?

COMBINED INCOME TAXABLE PORTION OF SOCIAL SECURITY
Individual Return  
$0 to $24,999 No tax
$25,000 to $34,000 Up to 50% of SS may be taxable
More than $34,000 Up to 85% of SS may be taxable
   
Married, Joint Return  
$0 to $31,999 No tax
$32,000 to $44,000 Up to 50% of SS may be taxable
More than $44,000 Up to 85% of SS may be taxable
   
Married, Separate Return  
$0 and up Up to 85% of SS may be taxable

How Much Income Can a Retiree Receive Without Paying Taxes?

It depends on the sources and total of your income. These income sources may include retirement account distributions from 401(k)s and IRAs, Social Security benefits, pension payments, and annuity income. Some people may also continue to earn some income from work, as an employee or through self-employment, even though they may have retired from their regular or long-term employment.

Earned income

Workers nearing retirement often ask, “How much income can a retiree receive without paying taxes?” It depends on your income sources and total. The Internal Revenue Service (IRS) differentiates between income types it classifies as earned and unearned. Earnings from employment and self-employment are subject to Social Security, Medicare, and income taxes. Unearned income—for example, income from pensions, IRAs, annuities and other investments—is subject to income tax under rules that vary by the income’s source.

If you are receiving Social Security benefits and continue to work and earn income, you will have to pay Social Security and Medicare taxes on that earned income. However, if the total of your earned income, any unearned income and Social Security benefits is low enough, you will not owe federal income tax on it. If your AGI is equal to or less than the standard deduction for your filing status, your federal income tax liability likely is zero. (See 2020 and 2021 Standard Deductions for Retirees, below.)

Income from IRAs, pensions, 401(k)s and other plans

Some types of income are “unearned,” but that doesn’t mean they aren’t subject to income tax. Income from different sources may be subject to different tax rules. Ultimately, a retiree’s tax liability depends on the tax bracket applicable to his or her total taxable income.

If you claimed tax deductions for your contributions to a traditional IRA, the distributions from that IRA may be taxable, depending on the total of all your income. Similarly, distributions from a 401(k) account or other “qualified” retirement account funded with “before tax” contributions are taxable. If your employer funded your pension plan, your pension income is taxable. Both your income from these retirement plans as well as your earned income are taxed as ordinary income at rates from 10% to 37%.

Some individuals make “after-tax” contributions, i.e., contributions for which they do not claim tax deductions, to their IRAs. Occasionally, other types of retirement plans also are funded with after-tax contributions. The distributions from such plans are not taxed to the extent that the distributions represent the return of previously taxed contributions. The information return, Form 1099-R, sent to a taxpayer who made after-tax contributions to plans will report both the gross amount distributed as well as the taxable amount.

IRAs, 401(k)s, and similar plans are required to make annual “required minimum distributions” or RMDs to beneficiaries, beginning in the year they turn 72 years of age. The RMD requirement was suspended for the 2020 tax year in legislation enacted in response to the pandemic but will apply in 2021. 

Roth IRA and Roth 401(k) distributions are not taxable. Roth plans, which are funded with after-tax dollars, do not have an RMD requirement.

Income such as dividends, rents, and taxable interest from investments held outside IRAs, 401(k)s and similar plans is subject to tax at ordinary income rates ranging up to 37%. Capital gains rates apply to gains realized on the sale of investments. Long-term capital gains are taxed at low rates, ranging from a zero rate bracket to a rate of 20% for taxpayers with very high taxable incomes.  

Because older people often have several types of taxable income, both earned and unearned, their tax rate and liability depends on the tax bracket that corresponds to their total taxable income. You determine your tax bracket in retirement the same way you did while you were working. Add up your sources of taxable income, subtract your standard or itemized deductions, apply any tax credits you’re eligible for, and check the tax tables in the instructions to Form 1040 and 1040 SR—or, more likely, put all this information into a tax software program or give it to your accountant.

Standard Deductions for Retirees

For 2020, the standard deduction amounts are $12,400 for single and separate returns of married persons, $24,800 for joint returns, and $18,650 for head-of-household returns. The standard deductions for 2020 are used on tax returns filed in 2021 for the prior tax year. The standard deduction for 2021 is $12,550 for single taxpayers and married taxpayers filing separately, $25,100 for married taxpayers filing jointly, and $18,800 for heads of household. The standard deductions for 2021 are used on tax returns filed in 2022.

In addition, taxpayers who are 65 years of age or older—whether or not they are retired—are eligible for an extra standard deduction of $1,650 for 2020 and $1,700 for 2021, if they are single or heads of household (and not married or a surviving spouse) and an extra $1,300 for 2020 and $1,350 for 2021, per senior spouse if they are married filing jointly, married filing separately, or a qualified widow(er). For details, see the charts below.

Standard Deductions for Taxpayers Age 65 or Over, Tax Year 2020
Filing Status Standard Deduction Senior Bonus Total Deduction
Single $12,400 $1,650* $14,050
Married filing jointly or qualified widow(er) $24,800 $1,300 per senior spouse $26,100 or $27,400
Married filing separately $12,400 $1,300 $13,700
Head of household $18,650 $1,650* $20,300
Standard Deductions for Taxpayers Age 65 or Over, Tax Year 2021
Filing Status Standard Deduction Senior Bonus Total Deduction
Single $12,550 $1,700* $14,250
Married filing jointly or qualified widow(er) $25,100 $1,350 per senior spouse $26,450 or $27,800
Married filing separately $12,550 $1,350 $13,900
Head of household $18,800 $1,700* $20,500
  • If unmarried and not a surviving spouse, otherwise $1,300 in 2020 and $1,350 in 2021. 

If your taxable total income is less than these amounts, you won’t owe any taxes. You usually won’t even have to file a tax return (unless you’re married filing separately), though you may want to anyway. Filing a return allows you to claim any credits for which you might be eligible, such as the tax credit for the elderly and disabled or the earned income credit. Filing a return also ensures that you receive any refund you may be owed.

Taxpayers who itemize deductions may not claim the standard deduction and bonus amounts. It should be noted that recent increases in the standard deduction amounts mean that the threshold where older taxpayers benefit more from itemizing than taking the standard deduction is higher. These higher standard deduction levels might affect your decisions about when to make charitable donations or pay other deductible expenses. You may be able to benefit from itemizing in some years if you can lump large itemizable expenses together so that they fall within a single tax year.

For 2020, a special benefit for certain charitable contributions is available to non-itemizers. Taxpayers who claim the standard deduction on their tax returns can deduct up to $300 of charitable contributions made in cash “above-the line,” that is, in calculating their adjusted gross income (AGI). Certain types of contributions are not eligible for the $300 deduction, including (1) gifts of noncash property, such as gifts of securities; (2) contributions to private non-operating foundations; (3) donations to supporting organizations and new or existing donor-advised funds; (4) contributions to veterans’ organizations, fraternal societies and certain cemetery and burial companies; and (5) contribution carryforwards from earlier years.

Tax Brackets for 2020

For the 2020 tax year, the top rate is 37% for individual single taxpayers with incomes greater than $518,400 ($622,050 for married couples filing jointly). The other rates and brackets are as follows:

Tax Brackets, 2020
2020
Rate
Married
Joint Return
Single
Individual
Head of
Household
Married
Separate
Return
10% $19,750 or less $9,875 or less $14,100 or less $9,875 or less
12% $19,751 to $80,250 $9,876 to $40,125 $14,101 to
$53,700
$9,876  to
$ 40,125
22% $ 80,251 to $171,050 $40,126 to
$ 85,525 
$53,701 to
$85,500
$40,126 to
$ 85,525
24% $171,051 to $326,600
 
$85,526 to $163,300 $85,501 to $163,300 $85,526 to $163,300
32% $326,601 to $414,700 $163,301 to $207,350 $163,301 to $207,350 $163,301 to $207,350
35% $414,701 to $622,050 $207,351 to $518,400 $207,351 to $518,400 $207,351 to $311,025
37% Over $622,050 Over $518,400 Over $518,400 Over $311,025

Tax Brackets for 2021

For the 2021 tax year, the top tax rate remains 37% for individual single taxpayers with incomes greater than $523,600 ($628,300 for married couples filing jointly). The other rates and brackets are as follows:

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our
editorial policy.
  1. IRS. “Don’t forget, Social Security benefits may be taxable.” Tax Tip 2020-76, June 25, 2020. Accessed Jan. 3, 2021.

  2. SSA. “Income Taxes on Social Security Benefits,” Research, Statistics & Policy Analysis, Research Summaries, Dec. 2016, Accessed Jan. 3, 2021. 

  3. SSA. “Retirement Benefits, 2021.” Pages 12-13. Accessed Jan. 11, 2021.

  4. IRS. Pub. 554, Tax Guide for Seniors. Pages 4, 12, 19. Accessed Jan 3, 2021.

  5. IRS. “2020 Schedule 1, Additional Income and Adjustments to Income.”  Accessed Jan. 3, 2021.

  6. IRS. “What Is Earned Income?” Accessed Jan. 3, 2021.

  7. IRS. “Publication 554: Tax Guide for Seniors,” Page 12. Accessed Jan. 3, 2021.

  8. IRS. “IR-2019-280,” Nov. 6, 2019.Accessed Jan. 3. 2021.  

  9. IRS. “IR-2020-245,” Oct. 26, 2020. Accessed Jan. 3, 2021.

  10. IRS. “IRS Rev. Proc. 2019-44.” Pages 13-14. Accessed Jan. 3, 2021.

  11. IRS. “Rev. Proc. 2020-45.” Pages 13-14, https://www.irs.gov/pub/irs-drop/rp-20-45.pdf.

  12. IRS. “Draft Form 1040 Tax Year 2020.” Dec. 15, 2020, Page 9. Accessed Jan. 3, 2021.

  13. IRS. “Publication 554: Tax Guide for Seniors,” Pages 26-31. Accessed Jan. 3, 2021. 

  14. IRS. “Year-end reminder: Expanded tax benefits help individuals and businesses give to charity during 2020.” IR-2020-278, Dec.18, 2020. Accessed Jan. 3, 2021.

  15. IRS. “IRS provides tax inflation adjustments for tax year 2020,” Nov. 6, 2019. Accessed Jan. 3. 2021. 

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