Social Security Tax Penalties

Social Security retirement benefits are taxable income under Social Security and Internal Revenue Service regulations in 2010, but only for those who have more income than just Social Security. If Social Security is your only income, there is no income tax charged on Social Security retirement benefits. Special calculations determine the amount of Social Security benefits that incur a tax penalty.


Collecting Social Security retirement benefits was free and clear of IRS taxation as income until the 1983 reform of the Social Security regulations. The intent was not to tax the low-income recipients whose only income was Social Security, but to tax those who have non-taxable interest and other income in addition to Social Security.

Combined Income

The combined income figure has only one purpose: calculating taxes on Social Security. This figure is not the same as adjusted gross income. Use the adjusted gross income figure from IRS Form 1040 and add non-taxable interest and 50 percent of Social Security benefits to arrive at the combined income figure. This figure is used for determining taxation of Social Security benefits.


If the combined income is $25,000 or less for an individual, there is no income tax penalty. If the combined income for an individual filer is between $25,000 and $34,000, the IRS taxes 50 percent of the Social Security benefits. A combined income in excess of $34,000 for an individual incurs taxation of 85 percent of Social Security.

A person who files federal income tax as married filing jointly incurs 50 percent of Social Security benefits taxed starting above $32,000 and continuing to $44,000. The IRS taxes 85 percent of Social Security benefits for those recipients married filing jointly whose combined income figure is in excess of $44,000.


The Social Security website indicates it is not to your advantage to file a federal tax return as an individual if you are married and living with your spouse. This will not escape the taxation of Social Security benefits.


In addition to taxation of Social Security benefits, penalties exist for early retirees who continue to work. In 2010, an early retiree who takes Social Security benefits before full retirement age can make $14,160 before penalties occur. For any year of early retirement that is not the year you reach full retirement age, Social Security charges a $1 penalty for every $2 made in excess of $14,160. The year you reach full retirement age of 66 or 67, depending on your birth date, the Social Security penalty is $1 for every $3 made in excess of $37,680. Penalties stop the month you reach full retirement age, but income tax on Social Security benefits continues for those whose combined income figures are in excess of the ceiling.