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Income Taxes

Retirees Need to Focus on Taxes, not Income.

Uncle Sam Wants Your Retirement Funds

As mentioned earlier, income management in retirement needs to focus on tax implications.  Since income is net of taxes and US taxes are progressive (tax rate increases with income), you need to be vigilant regarding the tax impact (expense) of actions taken to secure income.  Any time you receive money from pensions or annuities or receive distributions of dividends, interest or capital gains, you generate a corresponding tax bill.  Even interest from “tax-free” municipal bonds is considered in the tax calculation.  You may also generate a tax bill from your Social Security income or from your investment withdrawal.  The more you withdraw/receive in the same tax year, the higher percentage you’ll pay and the less income you’ll have.  As the tax tables at the bottom of this page illustrates, if you’re married and filing jointly you’ll pay only 10% tax on the first $19,900 received, but 12% or more on greater amounts (37% tax on income/withdrawal dollars over $628,300).

Standard Deduction

There are two main types of tax deductions: the standard deduction and itemized deductions. The IRS allows you to claim one type of tax deduction, but not both. Tax deductions are subtracted from your Adjusted Gross Income (AGI), lowering your taxable income.

For 2021, the Standard Deduction Amounts are as follows:

Filing Status
Standard Deduction Amount
Single
$12,550
Married Filing Jointly or Qualifying Widow(er)
$25,100
Married Filing Separately
$12,550
Head of Household
$18,800
  • For 2021, the Additional Standard Deduction amount for those over 65 or blind is $1,350. The additional standard deduction amount increases to $1,700 for unmarried taxpayers.

Taxes on Social Security Benefits

You may have to pay income taxes on your Social Security benefits if you have other income.  About one-third of people who get Social Security have to pay taxes on a portion or all of their benefits.

  • If you file a federal tax return as an “individual,” and your combined income is between $25,000 and $34,000, you may have to pay taxes on 50 ­percent of your Social Security benefits. If your combined income is more than $34,000, up to 85 percent of your Social Security benefits are subject to income tax.

  • If you file a joint return, you may have to pay taxes on 50 percent of your benefits if you and your spouse have a combined income that is between $32,000 and $44,000. If your combined income is more than $44,000, up to 85 percent of your Social Security benefits are subject to income tax.

  • If you are married and file a separate return, you probably will pay taxes on your benefits.

"Combined Income" is defined as the sum of your Adjusted Gross Income, nontaxable interest and half of your Social Security benefit.

At the end of each year, you will receive a Social Security Benefit Statement (Form SSA-1099) showing the amount of benefits you received. You can use this statement when you complete your federal income tax return to find out if you have to pay taxes on your benefits.

Money invested in traditional IRA or 401(k) accounts is taxable when it is withdrawn, and it must be withdrawn in annual installments (according to IRS Uniform Lifetime schedules) beginning at age 70 ½.  Money invested in Roth IRAs or Roth 401(k)s grows tax free, is not taxable when withdrawn, and has no withdrawal requirements.

2021 Individual Income Tax Brackets

Married Filing Jointly
Single / Unmarried
Married Filing Separately
Head of Household
Married Filing Jointly or Qualifying Widow/Widower (2021)
If taxable income is over --
But not over--
The Tax is:
$0
$19,900
10% of taxable income.
$19,901
$81,050
$1,990 plus 12% of the amount over $19,900.
$81,051
$172,750
$9,328 plus 22% of the amount over $81,050.
$172,751
$329,850
$29,502 plus 24% of the amount over $172,750.
$329,851
$418,850
$67,206 plus 32% of the amount over $329,850.
$418,851
$628,300
$95,686 plus 35% of the amount over $418,850.
$628,301
no limit
$168,993.50 plus 37% of the amount over $628,300.
Single / Unmarried Individuals (2021)
If taxable income is over --
But not over--
The Tax is:
$0
$9,950
10% of taxable income.
$9,951
$40,525
$995 plus 12% of the amount over $9,950.
$40,526
$86,375
$4,664 plus 22% of the amount over $40,525.
$86,376
$164,925
$14,751 plus 24% of the amount over $86,375.
$164,926
$209,425
$33,603 plus 32% of the amount over $164,925.
$209,426
$523,600
$47,843 plus 35% of the amount over $209,425.
$523,601
no limit
$157,804.25 plus 37% of the amount over $523,600.
Married Filing Separately (2021)
If taxable income is over --
But not over--
The Tax is:
$0
$9,950
10% of taxable income.
$9,951
$40,525
$995 plus 12% of the amount over $9,950.
$40,526
$86,375
$4,664 plus 22% of the amount over $40,525.
$86,376
$164,925
$14,751 plus 24% of the amount over $86,375.
$164,926
$209,425
$33,603 plus 32% of the amount over $164,925.
$209,426
$314,150
$47,843 plus 35% of the amount over $209,425.
$314,151
no limit
$84,496.75 plus 37% of the amount over $315,150.
Head of Household (2021)
If taxable income is over --
But not over--
The Tax is:
$0
$14,200
10% of taxable income.
$14,201
$54,200
$1,420 plus 12% of the amount over $14,200.
$54,201
$86,350
$6,220 plus 22% of the amount over $54,200.
$86,351
$164,900
$13,293 plus 24% of the amount over $86,350.
$164,901
$209,400
$32,145 plus 32% of the amount over $164,900.
$209,401
$523,600
$46,385 plus 35% of the amount over $209,400.
$523,601
no limit
$156,355 plus 37% of the amount over $523,600.