Tax Prep & Planning

How Are Social Security Benefits Taxed?

Have you recently retired? If so, Social Security is probably on your mind. If you are at least 62 or older, you have reached the age where you can collect Social Security benefits. Congratulations!

While you are collecting your benefits throughout the year, you may not think about the tax implications. But come early spring, you start wondering: “Do I have to pay income tax on my Social Security benefits?”

We’re here to help you answer this question.

Tax on Social Security Benefits 101

Your Social Security benefits might be either non-taxable or partially taxable, depending on how much income you have from other sources.

Here’s a little more information to help guide you in this matter:

If Social Security Is… Your Only Source of Income

If you don’t have other retirement income, investment income, or income from any other sources, your Social Security income will not be taxed.

If Social Security Is… Not Your Only Source of Income

If you have other sources of income in addition to your Social Security benefits, a portion of your benefits might be taxable. Other income typically includes interest, dividends, wages, retirement income (such as 401(k) and IRA distributions), capital gains, and other income.

Your benefits are potentially taxable if your provisional income is more than a base amount. Provisional income includes:

  • One-half of your social security benefits
  • Gross income reported on your tax return
  • Tax-exempt interest
  • Income you’ve excluded on your return such as foreign earned income and interest from U.S. savings bonds

What is the base amount for taxation of Social Security benefits?

The base amounts are:

  • $25,000 for single, head of household, qualifying widow(er), and married filing separate (living apart all year), or
  • $32,000 for married filing jointly, or
  • $0 for MFS filers who lived together at any time during the year

Generally, if provisional income exceeds the base amount, then up to 50% of your Social Security benefits will be taxable. None of your Social Security benefits are included in income if provisional income doesn’t exceed the base amount.

*HINT: The Social Security Benefits Worksheet on the Instructions for Form 1040 will help you to calculate your taxable amount.

Up to 85% of benefits will be taxable if provisional income exceeds the adjusted base amount. The adjusted base amounts are:

  • $34,000 for single, head of household, qualifying widow(er), and married filing separate (living apart all year), or
  • $44,000 if married filing jointly
  • $0 for MFS filers who lived together at any time during the year

How Social Security Income Is Reported to You

Every January, Social Security benefit recipients will receive a Benefit Statement (Form SSA-1099) showing the total benefit amount received in the previous year. You should use this Benefit Statement when you complete your tax return to find out if your benefits are subject to tax.

Note that taxable benefits are based on the gross amount of Social Security benefits paid, not your net benefits after Medicare and other deductions.

“If you do have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from your benefits,” says the Social Security Administration.

These are the basic rules. If you have multiple sources of other income, consider consulting with a tax expert to calculate your tax liability more precisely. Find an advisor now.

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