IRS Publication 915 explains the details but here is the short answer. Add 1/2 of all your Social Security benefits to all of your other income (taxable and non-taxable) to find your combined income*.
If you file an individual tax return and your combined income* is:
- more than $25,000 but not more than $34,000, you may owe income taxes on 50% of your Social Security benefits
- more than $34,000, you may owe income tax on 85% of your Social Security benefits.
If you file a joint tax return and your combined income* is:
- more than $32,000 but not more than $44,000, then you may owe income taxes on 50% of your Social Security benefits
- more than $44,000, then you may owe income tax on 85% of your Social Security benefits.
If you think you will owe income taxes on your benefits you can ask Social Security to withhold a percentage of your monthly check for taxes. You can do this when you first apply for benefits or later by completing IRS Form W-4V Voluntary Withholding Request and sending it to your local Social Security office.
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Why should we pay ANY tax on SS income? That money has already been taxed when it was taken out of our paychecks during the course of our working career. That is double taxation and in my mind would be considered illegal.
ReplyDeleteWhy indeed! I could explain that you only paid income taxes on your share of the Security benefit taxes paid while you were working and that your employer matched your contributions (tax free to you), but the real answer to your question is that the law requires it!
ReplyDeleteWhile the subject of taxes is almost always unpleasant, I brought it up because some retirees are surprised to discover their benefits are taxable and if they had known may have chosen to delay filing for benefits until the next calendar year or later when their marginal tax rate may be lower. It never hurts to look strategize when it comes to Social Security and taxes!
What if I worked 1/2 the year and earned$45,000? Then I retired June 11, 2010. I am 63 and was 63 when I retired. Does the $45,000 count as income against my Social Security, even if I wasn't receiving it at the time I was earning the $45,000? (Jan 1 through June 11, 2010)
ReplyDeleteYes, IRS uses your Adjusted Gross Income from your tax return plus any non-taxable interest plus 1/2 of your Social Security benefits received during the year to determine whether you owe income tax on a portion of your benefits. The amount you pay is based on your marginal tax rate. There may be tax advantages to waiting until a new tax year to receive your benefits. For more information, contact IRS or a qualified tax advisor.
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