Working While Collecting Social Security? Here's What You Need to Know to Minimize Taxes.

Whether you claimed Social Security at age 62 or waited until 70, it's possible you've decided to continue working. If that's the case, it's important to understand how employment income impacts your tax liability, and more importantly, how to minimize the taxes you're on the hook to pay. Here are three ways to potentially minimize the amount you owe.

Manage how much you earn

Keep track of your earned income and check your numbers at least quarterly. If the total of your Social Security benefits added to your earned income will push you into a higher tax bracket, look for ways to cut back on earned income for the year. For example, you may negotiate your work schedule to stay below the tax bracket threshold or defer bonuses to the following year.

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Make the most of tax-advantaged retirement accounts

Contribute as much as possible to a 401(k) or IRA to reduce your adjusted gross income (AGI). And since you're over 50, take advantage of catch-up contributions. If you're working for a company with a high-deductible health plan, establish a health savings account (HSA). Contributions to an HSA reduce your AGI, distributions for qualified medical expenses are not taxed, and HSAs don't impact taxes on Social Security benefits.

Suspend benefits

One way to minimize taxes is to determine if you can live without Social Security at this time. If so, the Social Security Administration (SSA) allows you to stop benefits -- for now. Here's a thumbnail look at suspending benefits:

• You can stop benefits as long as it's been less than 12 months since you became eligible to claim benefits.
• If you suspend benefits, you will have to pay back all the money you've received up to that point. This is called a "full withdrawal."
• If you've reached full retirement age (67 for most Americans), you can earn delayed retirement credits for the months you receive no benefits.
• If you voluntarily stop benefits, anyone in your household who receives Social Security based on your work record (such as a spouse collecting spousal benefits) will also have their benefits suspended. A divorced spouse will be able to continue receiving benefits.
• You'll need to find another way to pay Medicare premiums, as they cannot be deducted from suspended benefits.
• Your payments will automatically restart at age 70 (or you can restart them earlier). However, since you've earned delayed retirement credits, your monthly payment will be higher than it was when you first requested a suspension.

Suspending benefits can be a great option if your earned income is sufficient to cover your bills and you're interested in maximizing the amount you receive once you reclaim Social Security.

Minimizing taxes while working and collecting Social Security benefits can be tricky. If you're willing to work with an experienced tax professional, they can help you determine the most straightforward path for you.

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