The Income Threshold Where Side Hustle Earnings Start Taxing Your Social Security

A side hustle in retirement can be a great way to boost your income without formally returning to the workforce.

But you should be aware that the IRS uses a “provisional income” calculation to determine whether or not your Social Security is taxable and earning more money with a side gig could tip the scales. Find out more below.

The IRS Provisional Income Formula

Whether or not your Social Security benefit is taxable comes down to something called “combined income,” which includes half of your Social Security benefit, plus every other dollar of income you make.

The specific formula included adjusted gross income (not including Social Security), plus any tax-exempt interest, plus 50% of your annual Social Security benefit. That total then gets compared with two limits. Exceeding the lower limit means that up to 50% of your benefit becomes taxable, while crossing the upper one results in taxation of up to 85%. 

There are different thresholds for singles and married couples filing jointly. For single filers, the threshold limits are $25,000 and $34,000. For joint filers, the limits are $32,000 and $44,000, according to the IRS. 

These numbers haven’t changed since the 1980s, which is a bit unusual since most other IRS and Social Security limits change regularly to keep up with inflation. 

What the Real Numbers Look Like

According to the Social Security Administration (SSA), the average retired-worker benefit is $2,071 a month or $24,852 a year. Half of that is $12,426, which is your starting point for combined income before anything else gets added.

If you pick up a side hustle earning $15,000 for the year, such as working as a ride-hailing driver or running your own Etsy shop, your combined income would then be $27,426. At that point, you’ve crossed the $25,000 line, making up to half your Social Security check now taxable.

If you have a good year and earn $25,000, your combined income rises to $37,426. That’s past the $34,000 upper threshold, meaning up to 85% of your benefit is now fair game for the IRS.

For a married couple where both spouses are collecting benefits, the average is $3,208 a month combined or $38,496 a year. Half of that is $19,248. A joint side hustle earning $15,000 pushes combined income to $34,248, already past the $32,000 lower line. Get that side income up to $30,000 and combined income hits $49,248, well past the $44,000 mark where the 85% tier kicks in.

Don’t Forget About the Earnings Test

If you’re under full retirement age, drawing benefits and still earning an income, the SSA will temporarily withhold some of your benefits until you reach full retirement age.

Specifically, for each $2 you earn above $24,480 in 2026, your benefit will drop by $1. Once you reach full retirement age, the SSA will recalculate your benefit to include the money that was withheld. And in the year you reach full retirement age, the income threshold jumps to $65,160 and the withholding is reduced to $1 for every $3 you earn above the limit. But it’s important to know that if you’re pulling in side gig income, your actual Social Security payout may also take a hit.

After full retirement age, the earnings test disappears completely. However, the combined income tax rules never do. They apply for life.

How To Earn Without Affecting Your Social Security

The only way to remain under the Social Security taxation threshold is if you earn less income. Other than stopping work, there are a few other strategies you can use to drop your adjusted gross income.

One option is to spread your earnings out across two different tax years. If you can defer a project or invoice from December into January, for example, it might be enough to keep you under the threshold. Another option is to contribute to a tax-advantaged retirement plan, like a SEP-IRA or solo 401(k) plan.

One good practice is to take stock of where you stand halfway through the year. If you’re on your way to crossing a threshold, do the math and see if the benefit from your increased income outweighs the amount of additional tax you’ll have to pay. That way, you’ll still have time to take active steps, such as deferring a project or an invoice into January. 

This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.

More From MoneyLion: