Is My Social Security Income Taxable The Quick Answer
According to the IRS, the quick way to see if you will pay taxes on your Social Social Security income is to take one half of your Social Security benefits and add that amount to all your other income, including tax-exempt interest. This number is known as your combined income .
If your combined income is above a certain limit , you will need to pay at least some tax.
The limit is $25,000 if you are a single filer, head of household or qualifying widow or widower with a dependent child. The limit for joint filers is $32,000. If you are married filing separately, you will likely have to pay taxes on your Social Security income.
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.
Spousal Benefit Reduction Due To Early Entitlement
If you file for a spousal benefit prior to your full retirement age, that spousal benefit will be reduced due to early filing. The reduction is 25/36 of 1% for each month early, up to 36 months. For each month in excess of 36 months, the reduction is 5/12 of 1%.
Example : Bobs full retirement age is 67. Bob files for his retirement and spousal benefits at age 65 . As a result, his spousal benefit will be reduced by or 16.67%.
The final calculation of Bobs spousal benefit will be 83.33% x . And to that, we would add Bobs own retirement benefit to find the total amount of his monthly benefit.
What Kind Of Documents Do I Need To Verify My Social Security Number
Tax Documents Official tax documents contain your Social Security number And often are admissible as evidence for bodies that: to verify They number … These documents include: a The W2 form that you receive annually from your employer, or a Form 1099 if you have are an independent contractor, not an employee.
How To Calculate The Social Security Breakeven Age
For example, if you were born in 1960, your FRA is 67. If you choose to begin receiving Social Security income at age 62, which will be in 2022, then your FRA benefit will be reduced by 30%. Assuming that full monthly benefit would be $1,000, you will be left with a monthly Social Security check of only $700.
If a co-worker with the same birth date and similar earnings history elects to receive their benefit at FRA five years later, then their benefit will be $1,000 each month. For the first five years, you received a total of $42,000 , while your co-worker received nothing, so you are ahead. Once your co-worker starts receiving benefits, however, they get $300 more each monthor $3,600 more each yearthan you do. So when will your co-worker catch up to you in total benefits? Lets plug the numbers for both of you into a Social Security breakeven calculator, which divides the amount by which you are ahead by the higher amount per year that your co-worker receives.
The answer is when you are both 78 years and eight months, or 11.67 years after your FRA. After this point, your co-worker will earn more over their lifetime than you will.
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Do You Have A Security Freeze Or Fraud Alert On Your Credit Report
If you have a security freeze, fraud alert, or both on your credit report, you can still open a mySocial Security account by temporarily lifting it.
If you dont want to temporarily lift your security freeze or fraud alert, you can visit your local Social Security office to open an account in person. For more information on security freezes and fraud alerts, read the Federal Trade Commissions .
Costs Of Living Adjustment
The COLA is an annual adjustment to your Social Security benefits based on inflation. It changes each year based on the Consumer Price Index for Urban Workers and Clerical Workers . For workers who do not retire at their earliest retirement age, it is applied cumulatively to the PIA.
For example, the COLA in 2018 was set at 2%. If the worker from our example above chooses not to retire at 62, his PIA will still be adjusted upward to a resulting PIA of 2,339.40.
When Will I Receive My Social Security Check
The Social Security Administration’s payment calendar helps recipients plan for payments. If you were born in the first 10 days of your birth month, then you receive payments by the second Wednesday of the month. Those born on the 11-20 receive payments by the third Wednesday. Those born on the 21-31 receive payments by the fourth Wednesday. However, those who began receiving payments before May 1997 receive payments by the third day of each month.
Who Is Eligible To Collect Social Security Retirement Benefits
Workers who are at least age 62 and who have worked at least 10 combined years at jobs for which they paid Social Security taxes are eligible for Social Security retirement benefits. In many cases, spouses, widows and divorcees are eligible for Social Security retirement benefits based on a spouses or ex-spouses earnings history. Unmarried children 18 and younger can also get survivors benefits. You must be a U.S. citizen or lawful alien to collect benefits.
Number Of Credits Needed For Disability Benefits
To be eligible for disability benefits, you must meet a recent work test and a duration work test.
The number of credits necessary to meet the recent work test depends on your age. The rules are as follows:
- Before age 24 – You may qualify if you have 6 credits earned in the 3-year period ending when your disability starts.
- Age 24 to 31 In general, you may qualify if you have credit for working half the time between age 21 and the time you become disabled. As a general example, if you become disabled at age 27, you would need 3 years of work out of the past 6 years .
- Age 31 or older – In general, you must have at least 20 credits in the 10-year period immediately before you become disabled.
The following table shows how many years of work credits you need to meet the duration of work test based on your age when your disability began. For the duration of work test, your work does not have to fall within a certain period. The table only provides an estimate of how many work credits you need. It does not cover all situations. If you are statutorily blind, you must only meet the duration of work test. When statutory blindness is involved, there is not a recent work test requirement.
NOTE: This table is an estimate only and does not cover all situations
|If you become disabled…|
How To Value Your Benefits
Suppose youll receive $1,500 a month from Social Security beginning at age 66. Each year, that $1,500 a month can be expected to go up a little if the cost of living measured by the consumer price index increases.
Now, suppose youll live another 20 years. How much is that income stream worth?
You can answer that question by taking the present value of that stream of cash flow. To pay yourself $1,500 a month increasing at 2% a year for 20 years, youd need $263,977 in the bank earning a 5% annual rate of return. Youd need $348,535 if you live for 30 years.
And if you assume that youre using safe investments, earning 2% instead of a portfolio earning 5%the same rate of assumed inflation at which your income increases each yearyou would then need $352,941 in the bank for the income to last 20 years. Youd need $529,411 for it to last 30 years.
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Is It Possible To Find Out A Person’ s Social Security Number
However, in recent years social security number it has become an easy way to identify a person for many legal purposes. looking for a man s SSN can tell you a lot. Everything social security number is different. So if you know the name and SSN, you can quickly access many of a person’s public folders.
No More File And Suspend
Note that the claiming strategy called file and suspend, which allowed married couples who have reached their FRA to receive spousal benefits and delayed retirement credits at the same time, ended as of May 1, 2016. However, spouses born before Jan. 2, 1954, who have attained their FRA may still be able to file a restricted application. It allows them to claim spousal benefits while delaying their own benefits up to age 70.
Social Security benefits can be taxable if your combined income is high enough.
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If You’re Not Sure Why You Received A Payment
Contact the authorizing agency directly to find out why they sent the payment. You may be able to find the authorizing agency in the memo line of the check. View this diagram of a sample Treasury check to help you locate the authorizing agency contact information on your own check. Scroll about half way down the page to see the diagram.
If you’re unable to find which agency authorized the payment, . They can help you determine which government agency you need to contact. To find which RFC you need to call, look for its city and state at the top center of the check.
Use the Treasury Check Verification System to verify that the check is legitmate and issued by the government.
How Should I Decide When To Take Benefits
Consider the following factors as you decide when to take Social Security.
Your cash needs: If youre contemplating early retirement and you have sufficient resources , you can be flexible about when to take Social Security benefits.
If youll need your Social Security benefits to make ends meet, you may have fewer options. If possible, you may want to consider postponing retirement or work part-time until you reach your full retirement ageor even longer so that you can maximize your benefits.
Your life expectancy and break-even age: Taking Social Security early reduces your benefits, but youll also receive monthly checks for a longer period of time. On the other hand, taking Social Security later results in fewer checks during your lifetime, but the credit for waiting means each check will be larger.
At what age will you break even and begin to come out ahead if you delay Social Security? The break-even age depends on the amount of your benefits and the assumptions you use to account for taxes and the opportunity cost of waiting . The SSA has several handy calculators you can use to estimate your own benefits.
If you think youll beat the average life expectancy, then waiting for a larger monthly check might be a good deal. On the other hand, if youre in poor health or have reason to believe you wont beat the average life expectancy, you might decide to take what you can while you can.
A quick note about life expectancy
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Average Indexed Monthly Earnings
To calculate your AIME, the administration takes each year’s income throughout your working life and adjusts it for inflation . It then caps those adjusted incomes at the taxable maximum for Social Security. The agency then takes the 35 highest-earning years and calculates an average monthly income from them. This is your AIME.
For people who worked more than 35 years their lowest-earning years are dropped from the calculation. For people who worked less than 35 years the Social Security Administration calculates a “$0” in place.
Average The Highest 35 Years
The Social Security benefits calculation uses your highest 35 years of earnings to calculate your average monthly earnings. If you do not have 35 years of earnings, a zero will be used in the calculation, which will lower the average. In the table below, the highest 35 years are listed in Column G.
Total the highest 35 years of indexed earnings, and divide this total by 420, which is the number of months in a 35-year work history, to find the Average Indexed Monthly Earnings.
For our example worker, who was born in 1953 and turned 60 in 2013, the highest 35 years of wages total $1,919,040. Divide by 420 to get an AIME of $4,569.
|How to Calculate Your AIME for Social Security Benefits|
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Myth #: You Must Claim Your Social Security Benefit At Age 62
Some people think you have to start claiming your Social Security benefits at age 62. Thats a myth: 62 is the earliest age you can claim your benefit, but its not the only age to do so.
Your base benefit is calculated according to your full retirement age, or FRA, and your FRA is determined by your date of birth. The Social Security Administration calculates your base Social Security benefit based on your average indexed monthly earnings during the 35 years in which you earned the most .
Tip: Youll find your FRA at Social Securitys website, SSA.gov, or on a paper statement mailed to you by the SSA. If you were born between 1955 and 1959, your FRA is 66 plus some months. If you were born in 1960 or later, your FRA is 67.
If you claim Social Security benefits any time before your FRA, you lock in a permanent reduction in monthly income. Claiming at 62 translates to a reduced monthly income of 25% to 30%, relative to your FRA monthly benefit. That means you may receive a lot less monthly retirement income, every year, for potentially several decades. A key consideration for when you claim Social Security benefits is maximizing your income for a retirement that could last longer than 30 years.
Wait until age 70 and lock in a bonus:
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Using Your Benefit Estimates
As your statement will show, your Social Security retirement benefits will vary depending on when you claim them before or after your full retirement age . The longer you wait to start receiving payments, the higher your benefit amount will be.
However, it’s not always better to wait until your full retirement age to claim your Social Security benefits. If you need your Social Security benefits for living expenses, or you have a health condition that makes it unlikely that you will live past age 75 or so, you may be better off collecting your benefits sooner rather than later. You can use a calculator at the Social Security website to see which retirement age makes the most financial sense for you .
For comprehensive practical information about how and when to claim Social Security benefits, see Social Security, Medicare & Government Pensions, by Joseph Matthews with Dorothy Matthews Berman .
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How Your Ssdi Payments Are Calculated
The severity of your disability will not affect the amount of SSDI benefits you receive. The Social Security Administration will determine your payment based on your lifetime average earnings before you became disabled. Your benefit amount will be calculated using your covered earnings. These are your earnings at jobs where your employer took money out of your wages for Social Security or FICA.
Your SSDI monthly benefit will be based on your average covered earnings over a period of time, which is referred to as your average indexed monthly earnings . The SSA uses these amounts in a formula to determine your primary insurance amount . This is the basic amount used to establish your benefit.
SSDI payments range on average between $800 and $1,800 per month. The maximum benefit you could receive in 2020 is $3,011 per month. The SSA has an online benefits calculator that you can use to obtain an estimate of your monthly benefits.