Will your Social Security benefits be taxed? Let’s find out.
Here’s the deal. If you make more than $25,000 in a year, filing as an individual, your Social Security benefits will be taxed. Alternatively, filing as a married couple, if your total income exceeds $32,000, again, you’ll pay taxes on Social Security benefits.
If your income does not exceed these thresholds, your benefits won’t be taxed.
Taxation of Benefits Explained
The amount you’re taxed on benefits varies depending on your income level. If your income is between $25,000 and $34,000 as an individual, up to 50% of your benefits can be taxed. Whereas, if you’re a married couple filing jointly, that threshold is $32,00 to $44,000.
If your income exceeds $34,000 as an individual or $44,000 as a married couple, you can be taxed on up to 85% of your benefits.
A Quick Examples
For example, let’s say you’re filing as an individual and make $50,000 in income. At the same time, let’s assume you’re receiving $1,500 a month from social security. In this scenario, you’d pay taxes on 85% of your annual social security benefits. That means, of the $18,000 you received, you’ll be taxed on $15,300.
Regardless of your income, you will not pay taxes on more than 85% of your benefits.
Since your income affects how much your benefits will be taxed, it’s important to understand what counts as income. To determine how the IRS will treat your Social Security payments, you’ll need to figure out your adjusted gross income. In addition to that, you’ll need to include half of your Social Security benefits and all nontaxable interest income.
More to Know
There are a few other things that can affect your taxes, of course.
For instance, Supplemental Security Income is not taxed. Also, if you have a child that receives Social Security dependent or survivor benefits, that doesn’t count towards taxable income. The payments are only taxable if that child has enough income to file a return in their own name.
If you’re in a position where you do need to pay taxes on your Social Security benefits, you have options. For one, you can ask Social Security to withhold benefit payments, so you don’ have to worry about it. Alternatively, you can file quarterly estimated tax returns to the IRS.
In addition to federal taxes, as covered above, there are just over a dozen states that also tax Social Security. If you live in one of these states, you’ll need to get in touch with your state tax agency for more information. States that tax Social Security benefits are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, North Dakota, Vermont, Utah, and West Virginia.
Are you getting a head start on your taxes this year? Let us know in the comments below if you have any great tips or tricks we should write about.