Is my Social Security income taxable?
How are Social Security benefits taxed? Learn how to calculate how much you owe on your benefits based on your income and tax-filing status.
Published February 16th, 2020
Table of Contents
- Most people pay some tax on their Social Security benefits.
- How much you'll owe depends on how much you make from other sources as well.
- You can calculate how much you might owe using a worksheet from the Social Security administration.
Do you pay taxes on Social Security income? For that matter, what is Social Security tax (SS tax)? You’ve probably had those questions if you’re thinking about retirement soon. It’s good that you’re asking: it will help you to plan.
The truth is that most people who receive Social Security do have to pay taxes on their benefits. However, whether you will have to pay SS tax depends on your income level, more precisely your combined income. Every January, you’ll receive a copy of Form SSA-1099. This form is your Social Security Benefit Statement, and it will show you how much you received in benefits the previous year.
You can calculate your combined income by adding one half of your Social Security benefits from your Form SSA-1099 to your adjusted gross income (income after above-the-line deductions) and nontaxable interest. Once you have that number, you can figure out whether or not you will be taxed on your Social Security income. If you are married but opt to file a separate tax return, you will probably need to pay taxes on your Social Security benefits.
Calculating your Social Security income tax
Your Social Security tax rate will depend on your combined income: your Social Security benefits, as well as other income from part-time work, 401(k) distributions, and rental properties. Once you have that number, you can figure out which bracket you are in.
If you have less than $25,000 in combined income and are filing as an individual, you will not be taxed on your Social Security income. Couples filing together with a combined income of less than $32,000 will also not need to pay taxes on their Social Security benefits. According to the Social Security Administration, if you file an individual tax return with a combined income between $25,000 and $34,000, you will need to pay tax on up to 50% of your benefits.
The IRS states that unless you have significant income from other sources, such as wages or distributions from retirement accounts, you are unlikely to owe much or any taxes on your Social Security income.
For an income above $34,000, up to 85% of your benefits are included in your taxes. For couples filing a joint return, a combined income of $32,000 to $44,000 means up to 50% of benefits may be taxable. With a combined income of over $44,000, up to 85% of benefits may be taxable. It’s important to note that both of those categories are maximum percentages. Whether or not you’ll have to pay the maximum percentage takes a little more calculation.
Let’s suppose you are in the 50% category, either as an individual or together with your spouse filing jointly. What will your Social Security tax rate be? You’ll pay either 1) half of your benefits (the 50%), or 2) half of the difference between your combined income and the base amount, whichever one is lower. This also means that at least 50%, and maybe more, of your benefits will not be subject to taxation.
If you’re looking at up to 85% of your benefits being taxable, the formula is a bit more complicated. Fortunately, the IRS offers a worksheet to calculate how much you will need to pay. Of course, this also means that at least 15%, and maybe more, of your benefits will not be taxed.
How to file Social Security income on your federal taxes
If your Social Security is taxable, it’s usually easy to file it on your federal taxes once you have the amount you need to pay in SS tax. On your Form SSA-1099, the total amount of your benefits will be listed in box 3. Take that amount and write it on line 5a of your 1040. Now, write the taxable amount of your Social Security benefits on line 5b.
With your taxes filed, you have two options for paying. One is to fill out Form W-4V, Voluntary Withholding Request. The form will ask for your personal information and for you to complete 7 lines. You can choose to have 7%, 10%, 12%, or 22% of your monthly Social Security benefits withheld.
The other way is to file estimated quarterly payments. This way is admittedly more precise, but it will take a bit more work throughout the year.
Are there state taxes on Social Security benefits?
In addition to federal taxes, you may have to pay state taxes on your Social Security income. Whether or not this is the case will depend on what state you live in. A total of 13 states have at least some Social Security taxes.
Of these states, Minnesota, North Dakota, Vermont, and West Virginia all have the same rules as the federal government. The other nine states are Colorado, Connecticut, Kansas, Missouri, Montana, Nebraska, New Mexico, Rhode Island, and Utah. These states mostly follow the federal government’s rules but are a bit more lenient. They offer some deductions based on age and income.
It’s a good idea to talk to an accountant or financial planner if you live in any of the 13 states that tax Social Security income. The other 37 states and the District of Columbia do not tax Social Security at all.
You’ll most likely have to pay some taxes on your Social Security income. However, a little careful planning goes a long way toward helping to protect your retirement.
A Certified Financial Planner can help you make the most of your financial options. Depending on your situation, there may be strategies to limit the amount you will have to pay in taxes.
To make the most of your Social Security income and your retirement, talk to a Certified Financial Planner today.
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