Monday, May 16, 2022

Do You Have To Pay Taxes On Social Security Income

Don't Miss

How High Are Property Taxes In Virginia

Do you have to pay taxes on your Social Security? (maybe not)

The average effective property tax rate in Virginia is 0.80%. This is the 20th-lowest in the country. Property values in Virginia vary significantly between different parts of the state. In the cities and counties that are part of the Washington, D.C. metro area, median home values are typically higher than $200,000 and most homeowners pay over $2,000 annually in property taxes. In western Virginia, home values and property taxes are much lower, meaning most homeowners pay less than $1,000 each year.

Talk To A Tax Attorney

Need a lawyer? Start here.

  • Briefly tell us about your case
  • Provide your contact information
  • Choose attorneys to contact you
  • Trade
  • Self-help services may not be permitted in all states. The information provided on this site is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or will be formed by use of the site. The attorney listings on this site are paid attorney advertising. In some states, the information on this website may be considered a lawyer referral service. Please reference the Terms of Use and the Supplemental Terms for specific information related to your state. Your use of this website constitutes acceptance of the Terms of Use, Supplemental Terms, Privacy Policy and Cookie Policy. Do Not Sell My Personal Information

    What Are Your Social Security Benefits

    Each year, sometime in late January or February, you should get a statement from the Social Security Administration called a “Form SSA-1099”. The amount reported in Box 5 of that form is the amount you will use to determine if any of the benefits are taxable.

    If you get more than one form, you should add together the amounts in Box 5 of each form.

    If you receive a “Form RRB-1099” this means your Social Security-equivalent is being paid by the Railroad Retirement Board. You will also use Box 5 of that form in calculating if benefits are taxable.

    If you receive Supplemental Security Income payments during the year, you should not include those payments in your calculations because they are not taxable for federal income tax purposes.

    Recommended Reading: How Early Can I Collect Social Security

    Buy An Annuity Contract

    A qualified longevity annuity contract is a deferred annuity funded with an investment from a qualified retirement plan or IRA.

    QLACs provide monthly payments for life and are shielded from the downturns of the stock market. As long as the annuity complies with IRS requirements, it is exempt from the required minimum distribution rules until payouts begin after the specified annuity starting date.

    QLAC income can be deferred until age 85. A spouse or someone else can be a joint annuitant, meaning that both named individuals are covered regardless of how long they live.

    Keep in mind that a QLAC shouldn’t be bought just to minimize taxes on Social Security benefits. Retirement annuities have both advantages and disadvantages that should be weighed carefully, preferably with help from a retirement advisor.

    What Is ‘combined Income’ And How Is It Calculated

    Do this during tax season to maximize your Social Security ...

    Its your adjusted gross income or AGI plus your nontaxable interest plus one-half of your Social Security benefits.

    Now the thing about these taxes is this: No one should really be surprised by them. These taxes on Social Security have been with us since the Greenspan Commission created them in 1983, according to David Freitag, a financial planning consultant with MassMutual.

    But you might be surprised by the following details:

    The thresholds are not indexed for inflation. So as income in retirement has increased, more and more people are paying more and more income tax on their Social Security benefits, Freitag explains.

    Others see the same trend. Because the thresholds that determine whether or not Social Security benefits are taxable were never adjusted for inflation, it is pretty hard today to avoid paying taxes on Social Security benefits, says Elaine Floyd, director of retirement and life planning at Horsesmouth.

    Read Also: How To Calculate My Social Security Benefit Amount

    How Do I Determine If My Social Security Is Taxable

    Add up your gross income for the year, including Social Security. If you have little or no income in addition to your Social Security, you won’t owe taxes on it. If you’re an individual filer and had at least $25,000 in gross income including Social Security for the year, up to 50% of your Social Security benefits may be taxable. For a couple filing jointly, the minimum is $32,000. If your gross income is $34,000 or more, up to 85% may be taxable. The minimum for a couple is $44,000.

    Social Security In The Midwest

    Out in the Midwest, only seven of 12 states are free of Social Security taxes. South Dakota doesn’t have an income tax. Meanwhile, Illinois, Indiana, Iowa, Michigan, Ohio, and Wisconsin have full state income tax protection for those receiving Social Security benefits.

    On the other hand, Kansas, Minnesota, Missouri, Nebraska, and North Dakota tax Social Security in varying degrees. Minnesota and North Dakota are notable for following the federal rules on taxation.

    Recommended Reading: How Do I Start My Social Security Benefits

    The Tax Is Also Subject To An Income Cap

        The Old-Age, Survivors and Disability Insurance program taxmore commonly called the Social Security taxis calculated by taking a set percentage of your income from each paycheck. Social Security tax rates are determined by law each year and apply to both employees and employers.

        For 2021, the Social Security tax rate for both employees and employers is 6.2% of employee compensation, for a total of 12.4%. Those who are self-employed are liable for the full 12.4%.

        The combined taxes withheld for Social Security and Medicare are referred to as the Federal Insurance Contributions Act . On your pay statement, Social Security taxes are referred to as OASDI, and Medicare is shown as Fed Med/EE. Both Social Security and Medicare are federal programs that provide benefits for retirees, people with disabilities, and children of deceased workers.

        How Is The Social Security Tax Used

        Do Social Security Income Recipients Pay Income Taxes? TurboTax Tax Tip Video

        Income taxes you pay are deposited into the general fund of the United States. They can be used for any purpose, but Social Security taxes are different.

        These taxes are paid into special trust funds that should only be used to pay current and future Social Security retirement benefits, as well as disability benefits and benefits for widows and widowers. Today’s workers contribute their percentage, which in turn is paid to today’s beneficiariesthose workers who have retired and who are now collecting Social Security benefits. When today’s workers retire, they’ll tap into the benefits being paid by tomorrow’s workers.

        Also Check: When Should You Apply For Social Security

        How Much Is Social Security Taxed At Full Retirement Age

        Even if you work past full retirement age, you still have to make applicable Social Security contributions on your income. However, if you work past full retirement age, you can increase the amount of Social Security Benefits you receive.

        Once you start receiving Social Security benefits, your income will determine if you pay income tax on part of your Social Security income. For more information, refer to question #2: How Much Social Security Income Is Taxable?

        Do I Need To File A Federal Tax Return

        Under 2019 IRS filing guidelines, the minimum income amount at which you need to file depends on two main factors. The two factors are status and age. Status means whether you are filing as single, married, head of household, or married filing separate. If you are under age 65, are single, and have Social Security income below $12,200, you generally dont have to file a federal tax return. If you are older than 65, the amount goes up to $13,850 before you must file a federal tax return.

        Hopefully, this answer is what you need to know about filing taxes with just Social Security income.

        You May Like: Who Can Claim Social Security Benefits

        States That Don’t Tax Social Security Benefits

        Many people are surprised to learn that they can end up having to pay federal income tax on their Social Security benefits. To add insult to injury, some states also require residents above a certain income threshold to pay state income tax on what they receive from Social Security. Yet the majority of states are kind enough not to tax Social Security, so it’s worth considering the issue in choosing where you want to live after you quit your job and start drawing your benefits.

        Minimize Withdrawals From Your Retirement Plans

        Do You Have to Pay Taxes on Your Social Security and Other ...

        Money that you pull from your traditional IRA or traditional 401 will count as income in the year that you withdraw it. So if you can minimize those withdrawals or even not withdraw that money at all, it will help you get close to the tax-free threshold. Of course, this may not apply if youre forced to take a required minimum distribution that pushes you over the edge.

        If youre not forced to take an RMD in a given year, consider taking money from your Roth IRA or Roth 401 instead and avoid generating taxable income.

        Don’t Miss: How Do I Change Address On Social Security

        Senior Tax Credits For Elderly Or Disabled Taxpayers

        Even though you may have to file a income tax return, there are a couple ways you can lower the amount of tax you have to pay. Are you 65 or older and have other income than just Social Security? Its quite possible that the Senior tax credit for the elderly or disabled could reduce the amount of tax your have to pay on your combined income. Although, you cannot use this credit if you dont owe any money to the IRS. Its only useful when you owe money.

        How To Pay Taxes On Social Security

        If you owe taxes on your Social Security income, you can pay them in a few ways. First, you can pay them each Tax Day, just as you paid taxes when you were younger. You may also consider paying estimated taxes quarterly if you expect you may owe taxes.

        Alternatively, if you expect your Social Security benefits to be taxable, you may want to withhold federal taxes from your payments, just like you did from your paycheck when you were working.

        You can do so by completing Form W-4V, Voluntary Withholding Request, and sending it to your Social Security office. You can elect to have 7%, 10%, 12% or 22%withheld from your payments.

        Also Check: When Can You Take Social Security Benefits

        History Of Social Security Tax Rates

        The Social Security tax began in 1937. At that time, the employee rate was 1%. It has steadily risen over the years, reaching 3% in 1960 and 5% in 1978. In 1990, the employee portion increased from 6.06 to 6.2% but has held steady ever sincewith the exception of 2011 and 2012.

        The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduced the contribution percentage to 4.2% for employees for those years employers were still required to pay the full amount of their contributions.

        The tax cap has existed since the inception of the program in 1937 and remained at $3,000 until the Social Security Amendments Act of 1950. It was then raised to $3,600 with expanded benefits and coverage. Additional increases in the tax cap in 1955, 1959, and 1965 were designed to address the difference in benefits between low-wage and high-wage earners.

        The Social Security tax policy in the 1970s saw a number of proposed amendments and re-evaluations. The Nixon Administration was paramount in arguing that tax cap increases needed to correlate with changes in the national average wage index in order to address benefit levels for individuals in different tax brackets. The 1972 Social Security Amendments Act had to be revamped due to problems with the benefits formula that caused financing concerns. A 1977 amendment resolved the financial shortfall and established a tax cap increase structure that correlated with average wage increases.

        When Seniors Must File

        Do You Have to Pay Taxes on Your Social Security Disability Benefits?

        For tax year 2020, you will need to file a return if:

        • you are unmarried,
        • at least 65 years of age, and
        • your gross income is $14,050 or more.

        However, if you live on Social Security benefits alone, you don’t include this in gross income. If this is the only income you receive, then your gross income equals zero, and you don’t have to file a federal income tax return.

        But if you do earn other income that is not tax-exempt, then each year you must determine whether the total exceeds $14,050.

        • For tax years prior to the 2018 tax year , these amounts are based on the year’s standard deduction plus the exemption amount for your age and filing status.
        • Beginning in 2018, only your standard deduction is used since exemptions are no longer part of calculating your taxable income under the new tax law passed in late 2017.

        For the 2020 tax year,

        • If you are married and file a joint return with a spouse who is also 65 or older, you must file a return if your combined gross income is $27,400 or more.
        • If your spouse is under 65 years old, then the threshold amount decreases to $26,100.
        • Keep in mind that these income thresholds only apply to the 2020 tax year, and generally increase slightly each year.

        Recommended Reading: How Do You Find Out What Your Social Security Benefits Are

        State Taxation Of Social Security Benefits

        Most states don’t tax Social Security benefits. But the ones that do either follow the same federal provisional income rules or have special rules and income thresholds to determine what’s taxable.

        These 4 states use the federal PI formula: Minnesota, North Dakota, Vermont, and West Virginia. The taxable portion of Social Security for these states is the same as the federal amount.

        Nine states have special rules and income thresholds. Most use the federal modified adjusted gross income formula rather than the federal PI formula for taxing Social Security income.

        These states are: Colorado, Connecticut, Kansas, Missouri, Montana, Nebraska, New Mexico, Rhode Island, and Utah.

        If you live in a state that counts Social Security benefits as taxable income, you should consult your state tax department for details and a qualified tax advisor.

        The History Behind The Taxation Of Social Security Benefits

        The path to taxing Social Security benefits begins all the way back in the 1970s. When the 1970s began, Social Security’s trust fund ratio — a measure of a year’s projected costs that could be paid with funds available at the beginning of the year — stood at a relatively healthy 103%. But things quickly went downhill as demographic changes took shape.

        By 1975, the program was expending more than it was bringing in each year, a trend that would continue through 1982. By 1982, the trust fund ratio was down to a meager 15%. In other words, Social Security was running on fumes, and while the program can’t go bankrupt, it was very close to a point where across-the-board benefit cuts would have needed to be instituted to maintain solvency. With so many Americans reliant on Social Security income to make ends meet, benefit cuts weren’t viewed as a viable solvency option. Thus was introduced the last major bipartisan Social Security overhaul, the Amendments of 1983.

        However, one of the more controversial additions to the Amendments of 1983 was the introduction of taxing Social Security benefits, which was officially implemented in 1984. This tax, which was originally designed to only impact upper-income senior households, was introduced to help raise additional revenue and avoid having to cut retired-worker benefits.

        Also Check: How To File For Social Security Benefits At 62

        Calculating Your Social Security Income Tax

        If your Social Security income is taxable, the amount you pay in tax will depend on your total combined retirement income. However, you will never pay taxes on more than 85% of your Social Security income. If you file as an individual with a total income thats less than $25,000, you wont have to pay taxes on your social security benefits in 2021, according to the Social Security Administration.

        For the 2021 tax year, single filers with a combined income of $25,000 to $34,000 must pay income taxes on up to 50% of their Social Security benefits. If your combined income was more than $34,000, you will pay taxes on up to 85% of your Social Security benefits.

        For married couples filing jointly, you will pay taxes on up to 50% of your Social Security income if you have a combined income of $32,000 to $44,000. If you have a combined income of more than $44,000, you can expect to pay taxes on up to 85% of your Social Security benefits.

        If 50% of your benefits are subject to tax, the exact amount you include in your taxable income will be the lesser of either a) half of your annual Social Security benefits or b) half of the difference between your combined income and the IRS base amount.

        The example above is for someone who is paying taxes on 50% of his or her Social Security benefits. Things get more complicated if youre paying taxes on 85% of your benefits. However, the IRS helps tax payers by offering software and a worksheet to calculate Social Security tax liability.

        Do I Need To File A Tax Return If My Only Income Is Social Security

        Do Seniors On Social Security Benefits Have To Pay Taxes ...

        Submitted by anonymous.

        Thats a great question, as many Americans only source of income is Social Security. Social Security income is taxed for federal and state income tax purposes. If your earned income exceeds IRS 2019 filing guidelines, you are required to file a tax return with the IRS and in most states.

        Also Check: When Can I Start Drawing My Social Security

        More articles

        Popular Articles