Is a Side Hustle Worth It After 75? The Pros, Cons and Tax Traps
Written by
Dawn Allcot
Edited by
Angela Corry
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Working into your later years has many benefits. A job offers socialization and mental stimulation. But many retirees don’t want to be locked into a steady schedule or work commitment. Their health may prevent them from working set hours, too. A side hustle could be the perfect solution, especially for retirees age 75+.
While extra pocket cash may also help stretch investment income and Social Security benefits, there are financial ramifications to consider, positive and negative.
No Impact on Social Security Checks
First, let’s explore a common myth retirees often believe about taking on a side gig or even a W-2 job: how it affects on your Social Security income.
“Working at 75 years old does not reduce your Social Security check,” said George Dimov, founder and CEO of Dimov Tax. “The earnings test ends when you reach full retirement age.”
People who are 75 years old today reached FRA at age 66, so that concern is behind them.
“There is no benefit reduction, no penalty for working, and no earnings limit for 75-year-olds, regardless of how much money they make from their side hustle,” added Cody Schuiteboer, president and CEO of Best Interest Financial.
Increased Income Could Exceed Tax Thresholds
While your monthly Social Security benefits won’t shrink, your tax bill might grow with a successful side hustle.
“Up to 85% of your Social Security benefits may be taxable,” Dimov said.
“If you’re earning a combined income of under $32,000 or more married, filing jointly, your Social Security benefits will be taxed at 50%,” explained Melanie Musson, finance expert at Clearsurance.com. “If you’re earning $44,000 and married, filing jointly, 85% may be taxed.”
If you’re close to these thresholds and have a side gig that won’t move the needle on your monthly budget or lifestyle, but could increase your taxable income, it might be worth considering volunteering instead. You’ll get out of the house and find the same sense of purpose, without the tax ramifications.
If you’re already above the thresholds based on Social Security and investment income, this is less of a concern.
Similarly, if your side gig pushes you into a higher tax bracket, it may not be worth it. You’ll lose advantages like Roth IRA conversions and pay a higher marginal tax rate.
“Use the IRS calculator to help you determine how much you can earn without impacting how your benefits and income are taxed,” Musson said.
Consider Self-Employment Taxes
There’s another tax surprise gig workers should be aware of: self-employment taxes.
“If you have a side job where you get a 1099 form, not a W-2 form, you will have to pay 15.3% in self-employment taxes in addition to your income taxes,” Dimov said.
He added that seniors working side gigs should make sure to take the 20% Qualified Business Income (QBI) deduction, part of the Tax Cuts and Jobs Act. But even with this deduction, a side gig can create additional stress at tax time.
“If someone 75 makes $20,000 doing 1099 work, then they owe roughly $3,060 of self-employment tax before paying anything else related to the income,” Schuiteboer said.
He advised that it might be better for retirees to take a W-2 job instead of a side hustle.
However, for retirees who want to set their own hours or are hesitant to answer to a “boss” after years in the workforce the tax savings of a W-2 job may not be worth it.
Understand IRMAA
You might feel the impact of additional income even before tax time if your side hustle affects your Medicare premiums.
Individuals with a Modified Adjusted Gross Income (MAGI) above a certain amount are subject to the Income Related Monthly Adjustment Amount (IRMAA) program, which increases Medicare Part B and Part D premiums for the next two years.
“People … often do not see this coming,” Dimov said.
“The IRMAA thresholds are very rigid, and one extra thousand dollars may cost significantly more in increased premiums,” Schuiteboer added.
W-2 or Side Hustle?
Whether you’re working after age 75 for personal fulfillment or financial reasons, it’s smart to discuss your decision with a financial advisor or tax professional. Some retirees may find a W-2 job to be more profitable.
“Seniors who work for other reasons, like social connection, having something to look forward to each day, and a sense of purpose … will always find side hustles beneficial because these reasons accumulate into something priceless,” Schuiteboer concluded.
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