Reaching retirement age and collecting Social Security benefits does not exempt workers from continuing to pay payroll taxes on earned income.
Any person working in covered employment, regardless of age or benefit status, remains legally obligated to pay Social Security and Medicare payroll taxes.
This is a reality facing many older Americans who claimed Social Security early and later returned to the workforce out of financial necessity.
The Social Security Administration allows beneficiaries to claim retirement benefits as early as age 62, but early claiming comes with permanent reductions to monthly benefit amounts.
Workers who claim early and later find their benefits insufficient sometimes return to part-time or hourly work, including positions at major retailers like Walmart (WMT).
Federal law requires that wages earned in any covered employment are subject to both Social Security and Medicare taxes, and age provides no exception to this rule.
Employers withhold these taxes from paychecks automatically, meaning workers see the deductions regardless of whether they are already receiving monthly Social Security checks.
On the positive side, continued wage earnings in retirement can actually be factored into a worker’s Social Security benefit calculation, potentially raising monthly payments.
Understanding how combined income affects overall tax liability is equally important for older workers, since wages can raise adjusted gross income and increase the portion of Social Security benefits that becomes taxable.
Combined income is calculated by adding adjusted gross income, any nontaxable interest, and half of total Social Security benefits received during the year.
When combined income crosses certain thresholds, up to 85 percent of Social Security benefits can become subject to federal income tax, creating additional tax burdens for working retirees.
Financial advisors generally recommend that older workers in this situation consult a tax professional to fully understand their liability and explore any available deductions or credits.
The situation faced by a 76-year-old working hourly retail shifts reflects a broader trend of older Americans remaining in or returning to the workforce well past traditional retirement age.
