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How To Calculate My Social Security Income

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How To Calculate Your Social Security Break

How To Calculate Federal Income Taxes – Social Security & Medicare Included

Deciding when to take Social Security retirement benefits is important because it can directly affect your benefit amount. While you can technically start taking benefits as early as 62, youd receive them at a reduced amount. On the other hand, you could delay taking benefits up to age 70. Calculating your Social Security break-even age can help you decide when the best time is to begin taking benefits. You can do that using a Social Security break-even calculator. Additionally, it may behoove you to consult with a financial advisor about when its best for your particular situation to begin receiving Social Security.

How Does The Irs Calculate Social Security Income

For purposes of determining how the Internal Revenue Service treats your Social Security payments, income means your adjusted gross income plus nontaxable interest income plus half of your Social Security benefits. The IRS has an online tool that calculates how much of your benefit income is taxable.

Know Your Social Security Full Retirement Age

First things first:Determine your Social Security full retirement age. For people born between 1943 and 1954, full retirement age is 66. If your birthday falls between 1955 and 1959, it gradually climbs to 67. If you are born in 1960 or later, your full retirement age is 67.

You can claim your Social Security benefits a few years before or after your full retirement age, and your monthly benefit amount will vary as a result. More on that in a moment.

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Are Social Security Benefits Taxable

If you have a lot of income from other sources, up to 85% of your Social Security benefits will be considered taxable income. If the combination of your Social Security benefits and other income is below $25,000, your benefits wonât be taxed at all. The amount of your benefits that is subject to taxes is calculated on a sliding scale based on your income. Money that Social Security recipients pay in income taxes on their benefits goes back into funding Social Security and Medicare.

If your retirement income is high enough that your benefits are taxable, how do you pay those benefits? You can ask Social Security for an IRS Voluntary Withholding Request Form if youâd like the government to withhold taxes from your Social Security benefits. Otherwise, youâre expected to file quarterly tax returns to pay these taxes over the course of the year.

That covers federal income taxes. What about state income taxes? That depends. In 13 states, your Social Security benefits will be taxed as income, either in whole or in part the remaining states do not tax Social Security income.

Social Security Calculation Step : Adjust All Earnings For Inflation

Taxable Social Security Calculator

So lets jump in with calculating your AIME. To do this, youll need to get use a notepad or a tool like Excel/Google Sheets.

Youre going to need six individual columns with plenty of room underneath for your information. Set up your columns with the following headings: Year, Age, Actual Earnings, Indexing Factor, Indexed Earnings, Highest 35 Years.

The first two headings are the year and your age. Go all the way back to the first year you had earnings that were taxed for Social Security. You can find a complete record of this by going to your online SSA account and click the link that says view earnings record. If you dont have an online account, its very easy to set one up.

This may seem a little redundant to put the year and your age, but itll make another step a little easier.

Now you just need to copy down the information from the SS earnings history. Youll want to use the part that says your taxed Social Security earnings. Dont skip a year, even if there were no earnings. Just put a zero in.

Once you have all of your historical earnings recorded, its time to adjust them for inflation. The SSA uses an indexing factor to make sure your future benefit has kept up with inflation, but still based on your earnings.

Important note hereonly your earnings through age 59 are indexed. All earnings at age 60 and beyond are used in the calculation at face value with no inflation adjustment applied.

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How Do You Calculate Social Security Tax Liability

However, the IRS helps tax payers by offering software and a worksheet to calculate Social Security tax liability. Once you calculate the amount of your taxable Social Security income, you will need to enter that amount on your income tax form. Luckily, this part is easy. First, find the total amount of your benefits.

How To Calculate Your Social Security Benefits: A Step

Its important for you to have a clear understanding of the process used to calculate your Social Security benefits. If you understand this calculation, you may be able to spot mistakes and fix them before its too late.

Like anything with Social Security, the rules can seem complex at first. But once you get under the surface, they are actually pretty easy to understand. To help you, I distilled the several pages of calculation rules down into four easy-to-understand steps.

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What Was The Cost Of Living Increase For Social Security In 2013

Cost-of-Living Adjustment : Based on the increase in the Consumer Price Index from the third quarter of 2011 through the third quarter of 2012, Social Security and Supplemental Security Income beneficiaries will receive a 1.7 percent COLA for 2013. Other important 2013 Social Security information is as follows:

Avoiding Social Security Benefit Taxes

How To Calculate Social Security Benefits [3 Easy Steps]

You might be able to tweak your spending if your combined income is close to the taxation thresholds listed above to reduce or avoid taxes on your Social Security benefits. Consider cutting back on spending or withdrawing more money from your Roth savings, if you have any, because this money does not count toward your combined income for the year. Charitable donations will also help reduce your combined income because you can write these off on your taxes.

If you’re still working, consider delaying Social Security until you retire. This could help lower your combined income because you stop getting paychecks, which in turn might help you avoid Social Security benefit taxes. It’ll also help boost your Social Security checks when you do finally begin claiming them. But don’t delay your Social Security benefits past age 70. Your checks won’t increase anymore after this, and avoiding Social Security benefit tax isn’t worth giving up all the money your Social Security checks could provide.

Social Security benefit taxes aren’t the easiest thing to understand, but it’s important that you take the time to learn the rules. It can help you make more educated decisions about your Social Security benefits and your retirement savings so you can hold on to more of your hard-earned cash.

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Social Security Bend Points

The Social Security benefits formula is designed to replace a higher proportion of income for low-income earners than for high-income earners. To do that, the formula uses what are called bend points.” These bend points are adjusted for inflation each year.

Bend points from the year you turn 62 are used to calculate your Social Security retirement benefits. The example in the table below uses 2020 bend points. It works like this:

  • You take 90% of the first $906 of AIME.
  • You take 32% of the next $5,785 of AIME.
  • You take 15% of any amount over that $5,785.
  • You total those three numbers.

The result is your primary insurance amount, or PIA, the amount you will receive if you begin benefits at your Full Retirement Age .

Your PIA is rounded to the next lowest dime, and your benefit amount is rounded to the next lowest dollar.

Technically, your PIA is calculated, rounded to the next lowest dime, and then any inflation adjustments are applied. That number is then rounded to the next lowest dime. Then any increase or decrease based on age is applied. That number is then rounded down to the next lowest dollar.

You can see current and historical bend points and the current year’s bend points on the Bend Formula Bend Points page of the Social Security Administration’s website.

In the example in the table below, you can see how the AIME calculated in the previous step was plugged into the bend point formula to calculate the PIA.

Beware The Social Security Earnings Test

Bringing in too much money in earned income can cost you if you continue to work after claiming Social Security benefits early. With what is commonly known as the Social Security earnings test for annual income, you will forfeit $1 in benefits for every $2 you make over the earnings limit, which in 2021 is $18,960. Once you are past full retirement age, the earnings test no longer applies, and you can make as much money as you want with no impact on benefits.

Any Social Security benefits forfeited to the earnings test are not lost forever. At your full retirement age, the Social Security Administration will recalculate your benefits to take into account benefits lost to the test. For example, if you claim benefits at 62 and over the next four years lose one full years worth of benefits to the earnings test, at a full retirement age of 66 your benefits will be recomputed — and increased — as if you had taken benefits three years early, instead of four. That basically means the lifetime reduction in benefits would be 20% rather than 25%.

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Who Is Eligible For Social Security Benefits

Anyone who pays into Social Security for at least 40 calendar quarters is eligible for retirement benefits based on their earnings record. You are eligible for your full benefits once you reach full retirement age, which is either 66 and 67, depending on when you were born. But if you claim later than that – you can put it off as late as age 70 – youâll get a credit for doing so, with larger monthly benefits. Conversely, you can claim as early as age 62, but taking benefits before your full retirement age will result in the Social Security Administration docking your monthly benefits.

The bottom line: Youâre eligible for Social Security Benefits if youâve paid into the system for at least a decade, but your actual benefits will depend on what age â between 62 and 70 â you begin to claim them.

How Taxes Are Calculated

social security benefits tax worksheet calculator ...

Social Security benefit taxes are based on what the Social Security Administration refers to as your âcombinedâ income. That consists of your modified adjusted gross income, which includes nontaxable interest and half of your Social Security income. After you cross the income thresholds specified in the chart below, a portion of your Social Security benefits will be considered taxable income. For example, a married couple in retirement filing jointly with combined income greater than $32,000 up to $44,000 could find that as much as 50% of their benefit payments are considered taxable income.

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How Much Social Security Will I Get In Retirement

The amount of your monthly Social Security retirement benefit depends on multiple factors, including how much you earn over your working life, how old you are when you retire and allowances for inflation. Understanding how the payment is calculated can help you estimate what to expect and better position yourself to plan for retirement. Here’s how it works.

The Sneaky Reason You Might Lose A Chunk Of Your Social Security Income

Social Security is an important income source for many seniors — including those who do have additional income streams at their disposal in retirement. Say you manage to amass a decent-sized nest egg. Your savings might provide you with, say, $20,000 of income a year. If you’re used to living on a lot more, Social Security can help pick up the slack.

But many seniors are shocked to learn that they’re not entitled to their Social Security income in full. That’s because even low to moderate earners are subject to having their benefits taxed at the federal level. And if that happens to you, it’ll cause your Social Security paycheck to shrink.

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How Do I Calculate My Taxable Social Security Benefits 2020

If youre trying figure out if your Social Security benefits will be taxed, the first thing you need to do is calculate your provisional income. Your provisional income is equal to the combined total of 50% of your Social Security benefits, your tax-exempt interest, and the other non-Social Security items

State Taxes On Social Security Benefits

Calculating Taxable Social Security (Taxes on Social Security Benefits) | Part 2 of 2

Everything weve discussed above is about your federal income taxes. Depending on where you live, you may also have to pay state income taxes.

There are 13 states that collect taxes on at least some Social Security income. Four of those states follow the same taxation rules as the federal government. So if you live in one of those four states then you will pay the states regular income tax rates on all of your taxable benefits .

The other nine states also follow the federal rules but offer deductions or exemptions based on your age or income. So in those nine states, you likely wont pay tax on the full taxable amount.

The other 37 states do not tax Social Security income.

State Taxes on Social Security Benefits
Taxed According to Federal RulesMinnesota, North Dakota, Vermont, West Virginia
Partially TaxedColorado, Connecticut, Kansas, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah
No State Tax on Social Security BenefitsAlabama, Alaska, Arizona, Arkansas, California, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin, Wyoming

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Defining The Social Security Break

Your Social Security break-even age represents, in theory, the ideal point in time to apply for benefits in order to maximize them.

Remember, you can begin taking your benefits at age 62 at a reduced amount. But by taking your benefits at this earlier age, youll receive more Social Security checks over your lifetime assuming you reach your desired life expectancy.

On the other hand, delaying your benefits past full retirement age increases them year over year until you reach age 70. Currently, the full retirement age for most people is either 66 or 67 years old, based on Social Security Administration guidelines. If you wait until age 70 to start claiming your benefits, youd receive 132% of your regular monthly benefit amount. So the trade-off is receiving fewer checks from Social Security but the ones you do get would be larger.

Your break-even age is the point at which youd come out ahead by delaying Social Security benefits. Your actual Social Security break-even age can depend on the amount of benefits youre eligible to receive, your tax situation and things like how inflation might affect the purchasing power of your benefits.

Is Social Security Taxable

Yes, Social Security may be taxable. But the portion of benefits that are taxed depends on a person’s filing status and provisional income.

There are two steps in determining whether your Social Security benefits are taxable and at what rate:

  • Find your provisional income, which is equal to adjusted gross income plus non-taxable interest plus half of your annual Social Security benefit. Married couples calculate theirs by taking half of each person’s annual Social Security benefit and adding it to their combined income.
  • Apply that total to the following income limits to find out how much of the Social Security benefit will be taxed at the your marginal tax rate:
  • Provisional income for a single, head of household, qualifying widow, or married but separate filer

    Provisional income for a married, joint filer

    Amount of Social Security benefit taxed

    Under $25,000

    More than $44,000

    Up to 85% of Social Security benefit taxed at filer’s marginal tax rate

    Note: Married couples who file taxes separately but lived together at any time during the tax year are taxed on up to 85% of their Social Security benefits regardless of their income level.

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    How Do You Know How Much You Will Receive

    To help each beneficiary know what amount to expect, monthly benefits should be calculated based on several circumstances.

    The simplest way to calculate your benefit is to take your current monthly payment and then multiply it by 5.9%. That amount is added to the original payment and you will see the increase reflected in your check, according to MSN.

    It’s important to keep in mind that only the 35 years with the highest earnings count toward your Social Security benefit. That’s why it’s important to work for at least 35 years, or else $0 will be factored into your benefit calculation for each year you are missing an income.

    Security’s annual increase, or COLA, is determined each year by the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W.

    How Your Social Security Benefits Are Earned

    Squad Timing

    To be eligible for Social Security benefits in retirement, you must earn at least 40 “credits” throughout your career. You can earn as many as four credits each year, so it takes 10 years of work to qualify for Social Security.

    In 2021, you must earn $1,470 to get one Social Security work credit and $5,880 to get the maximum four credits for the year.

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