With Tax Day quickly approaching (Wednesday, April 15th!), many of us immediately go into panic mode: What am I allowed to write off? What if I owe? How will my Social Security benefits be affected?
I’m here to put any concerns to rest and address the last question, which is one that often comes up when working with clients who are retired or are seriously planning to retire in the very near future.
If you do receive Social Security, you should have received a Social Security Benefit Statement (Form SSA-1099) that details the benefits you received in the prior year. Generally speaking, you will only need to pay federal income taxes on your Social Security benefits if you receive another substantial form of income, such as wage, dividend, or rental income. The higher your taxable income, the more you will pay on your benefits.
However based on Internal Revenue Service (IRS) rules, you won’t pay an income tax on more than 85 percent of your Social Security benefits. Let’s break it down by “individual” and “joint” returns:
If you are filing as an individual and your combined income* is below $25,000, your benefits WILL NOT be taxed.
If your income is $25,000 – $34,000, then up to half of your benefits may be subject to a federal income tax.
For income more than $34,000, up to 85 percent of your benefits may be considered taxable income.
If you and your spouse file a combined income* of less than $32,000, your benefits WILL NOT be taxed.
If your joint income is $32,000 – $44,000, then up to half of your benefits may be subject to a federal income tax.
For income more than $44,000, up to 85 percent of your benefits may be considered taxable income.
If you think you will owe taxes on your Social Security on a yearly basis, you can have the government withhold taxes, which will make it easier to pay your taxes when April 15th hits — simply request and fill out an IRS Form W-4V. You can withhold as little as seven percent or as much as 25 percent.
* Combined Income:
Your adjusted gross income, nontaxable interest – such as municipal bond interest – and half of your Social Security benefits.
Tags: Personal Finance, Tax Day, Tax Season, Taxes