This is tax season once again. It’s what must be said for journalistic purposes. Still, Social Security recipients know it isn’t news: those getting Social Security income for a working lifetime can depend upon it for at least a third — and often more — of a lifetime retirement income. Is Social Security taxable? What does “yes” and “no” mean? Well, yes and no, but what we can do for you is provide just a couple of things you might want to know about Social Security and taxes and a few battleground survival strategies.
Not All Social Security Benefits Are Taxed
Good news: you won’t typically owe your Social Security benefits tax. If your annual income exceeds a certain limit, you’ll owe Social Security income tax on the part of your benefits. Part of your benefits will be taxable if your ‘base amount’ is greater than zero. Your base amount depends on your total income for the year. YOUR TOTAL INCOME FOR A YEAR DEPENDS ON ONE OF TWO THINGS: If your AGI is above a certain amount (1/$000), it depends on your AGI + tax-exempt interest + 1½ × your Social Security benefits.
Understanding the Base Amounts
The IRS then uses these base amounts to determine your taxable portion of your Social Security and taxes, whether you are filing as single, head of household, qualifying widow(er), married filing jointly, married filing separately (may I be gouged on pain of death if you file this with the IRS!), or as a widow(er) with a dependent child.
Single, Head of Household, or Qualifying Widow(er): none of your benefits are taxed if your gross income (from all sources) is less than $25,000.
However, if your total effective income (as distinguished from AGI!) is below about $32,000, you must file ‘Married Filing Jointly,’ or no benefit will be taxed.
Married Filing Separately and Lived Apart All Year: If under $25,000, you can exclude all your benefits from tax.
Filing married separately and living together, you must use this different formula: Don’t try to figure this out alone. Call SG INC CPA for help calculating this.
Up to 85% of Benefits Can Be Taxed
However, suppose you figure out your ‘modified adjusted gross income.’’ In that case, your AGI plus interest is generally not subject to Social Security income tax — more than the base amount for your filing status- and is taxed up to 85 percent of your Social Security benefits. You pay no tax on the other 15 percent.
Tax Withholding Options
You can even pay federal income taxes – taken right out of your monthly Social Security benefit payment – so there’s less chance you will have to pay a massive bill in April. You can have 7 percent, 10 percent, 12 percent, or 22 percent withheld. Go to www.socialsecurity.gov, or fill out an IRS Form W-4V.
State Taxes and Social Security
On the other hand, should ‘Adjusted Gross Income-plus-non-taxable-interest’ be greater than the following number (for 2023: single taxpayer, $34,000; head of household, $52,000; married, filing jointly, $44,000; see Social Security Administration), you can expect to see as much as 85 percent of your benefits added to ‘Adjusted Gross Income’ on your form IRS 1040.
Feds don’t tax your Social Security check, but your IRS’ Adjusted Gross Income’ can go up enough to make you owe a little bill to Social Security taxability. Nag me enough, and I’ll be nagging you back pretty soon. Then there’s the chance that your Social Security was taxed by your state (or states). At this writing (2023), the following 13 states were taxing Social Security; 2024 numbers: only Colorado, Connecticut, Kansas, Minnesota, Montana,
Navigating Tax Season with Confidence
Then tax season won’t be such a taxing time. Research how Social Security is taxed; use tax withholding; and, if you need help finding advice.
Here are some additional tips for a stress-free tax season:
Then, the forms and statements you will need: Any documents related to your Social Security benefits statement (form SSA-1099) and Form W-2 (real-wage) statements from employers on your year-end pay.
Please file your taxes electronically. It’s quick and simple, accelerates your math calculations, and e-filing is secure.
But if it isn’t that clear-cut for you, then get that professional check on social security taxability: maybe you’re screwing up what you pay and what credits or deductions you should realistically be claiming. SG INC CPA: info@sginccpa.com