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How To Determine Your Social Security Income

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How Social Security Works

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

The Social Security Administration uses a multi-step formula to calculate just how much any given American gets in benefits. Factors include marriage, lifetime contributions, work history and more. But the purpose is always the same: to make sure that everyone who works has a safety net for retirement. To understand just how important that is we have to recall how senior citizens lived before President Franklin Roosevelt’s administration invented this program.

Although precise measurement hadn’t yet begun, most estimates suggest that in 1934 approximately half of all seniors lived in poverty. Most estimates suggest that this figure would have changed little over the past 84 years without the Social Security program. Instead, by 1959 this figure had fallen to 35%. By the year 2000 only 1-in-10 seniors lived in poverty, a number that has stayed largely consistent to this day. In many very real ways, Social Security created the concept of retirement.

Of course, there’s still far to go. Nearly a third of seniors still live within 200% of the poverty line, and many more still struggle to pay their bills.

Policy Basics: Top Ten Facts About Social Security

Social Security provides a foundation of income on which workers can build to plan for their retirement. It also provides valuable social insurance protection to workers who become disabled and to families whose breadwinner dies.

Eighty-five years after President Franklin Roosevelt signed the Social Security Act on August 14, 1935, Social Security remains one of the nations most successful, effective, and popular programs.

How Inflation Impacts Your Pia

Your PIA is calculated at age 62. If you wait beyond age 62, cost-of-living adjustments will be applied to your PIA for each year afterward.

If you have already had most of your 35 years of earnings, and you are near age 62 today, the age 70 benefit amount you see on your Social Security statement will likely be higher due to these cos- of-living adjustments. Many people do not account for this when doing their own calculations, which can lead them to think that taking Social Security early is a better deal, when waiting is often the better deal.

In the table below, our hypothetical worker, born in 1954, is eligible for full retirement at age 66. The column on the right shows the effect of inflation for waiting beyond age 62 to take their benefits.

Effect of Age on Claiming Benefits
Year

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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?

How To File Social Security Income On Your Federal Taxes

Taxes on Social Security

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. This will be in box 3 of your Form SSA-1099. Then, on Form 1040, you will write the total amount of your Social Security benefits on line 5a and the taxable amount on line 5b.

Note that if you are filing or amending a tax return for the 2017 tax year or earlier, you will need to file with either Form 1040-A or 1040. The 2017 1040-EZ did not allow you to report Social Security income.

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Do You Expect To Live A Long Life

Many people live longer than they expect.

Because Social Security provides guaranteed income for life, it’s especially valuable to you when you reach age 80 and beyond. Claiming benefits at your full Social Security benefit age or later could be a good way to secure your monthly income during your later years. Your benefit increases the longer you wait to claim, up to age 70, and is adjusted annually with the cost of living. If you live into your 80s but claim at age 62 instead of your full retirement age or later, your total lifetime benefits will be lower by thousands of dollars.Calculate your expected longevity.

Claiming at your full benefit age could still make sense for you.

We understand it’s difficult to make predictions. You may want to plan for the possibility that you may spend 20 or more years in retirement. On average, a woman reaching age 65 today will live to age 87, and a man will live to age 84. Waiting to claim as long as you can could still make sense for you if you are married, are the higher earner in the household, and want your surviving spouse to keep the highest monthly benefit after you die. Remember, you can claim at any point between age 62 and 70. Each additional month that you wait to claim gives you a permanent increase in your monthly benefit which becomes more valuable as you age.Calculate your longevity.

There’s a good chance that you’ll live into your 80s and beyond.

Your May Have To Pay Taxes On Social Security Benefits

Most people know that you pay tax into the Social Security Trust Fund throughout your career, but some retirees don’t realize that you also have to pay tax on your Social Security benefits once you start taking them. Benefits lost their tax-free status in 1984, and the income thresholds for triggering tax on benefits haven’t been increased since then.

It doesn’t take a lot of income for your Social Security benefits to be taxed. For example, a married couple with a combined income of more than $32,000 may have to pay income tax on up to 50% of their Social Security benefits. Higher earners may have to pay income tax on up to 85% of their benefits.

You may also have to pay state income taxes on your Social Security benefits. See our list of the 12 States That Tax Social Security Benefits.

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How Do I Increase My Social Security Benefits After Retirement

To increase your monthly benefit, don’t start taking Social Security payments right when you reach full retirement age. The longer you wait, the more you’ll get each month. If you want to get the highest possible amount of Social Security benefits each month, you need to wait until age 70 to retire.

Fact #: Most Elderly Beneficiaries Rely On Social Security For The Majority Of Their Income

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

Social Security provides the majority of income to most elderly Americans. For about half of seniors, it provides at least 50 percent of their income, and for about 1 in 4 seniors, it provides at least 90 percent of income, across multiple surveys and the study that matches survey and administrative data.

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What Is The 2021 Social Security Tax Rate

The social security tax rate is not often adjusted which means that the 2021 social security tax rate is no different than the one it was the years before. The current social security tax rate is 12.4%. That percentage is divided equally between the employer and the employee. This means that on your income you will find a withheld amount of 6.2%. The maximum taxable income for your social security for 2022 is $147,000. Anything above that amount remains untaxed. It is important to remember that the Social Security tax is regressive, which means that it is the absolute same regardless of the income that you are getting.

In cases of self-employment, the full cost of the Social Security taxes will fall on you as there is no employer to cover 50% of the charge. This means that those who are self-employed will need to pay the full 12.4% out of their income. This once again is only true for up to $147,000. If you are earning more than that then you will only be taxed 12.4% on that $147,000.

  • The Social Security tax limit for 2022 is $147,000
  • The Social Security tax rate is 12.4%
  • If self-employed the full tax rate is paid by the individual
  • If employed in a company the cost of social security is equally divided between the employer and the employee

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.

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Calculate My Social Security Income

These days thereâs a lot of doom and gloom about Social Securityâs solvency – or lack thereof. And regardless of whether you think Social Securityâs future is secure, the fact remains that you shouldnât plan on living exclusively off your Social Security benefits. After all, Social Security wasnât designed to make up a retireeâs entire income.

Still, many people do find themselves in the position of having to live off their Social Security checks. And even if you have other income sources in retirement, Social Security can make up a significant part of your retirement income plan. That’s why itâs important to know all the rules surrounding eligibility, benefit amounts, taxation and more.

Do you need help managing your retirement savings? To find a financial advisor near you, try our free online matching tool.

Gains Upon The Sale Of Your Home

Taxable Social Security Calculator

You most likely won’t pay taxes on gains from the sale of your home if you’ve lived there for at least two years, unless you have gains in excess of $250,000 if you’re single, or $500,000 if you’re married. The rules get more complex if you rented your home out for a while, so you might want to work with a tax professional to determine whether and how you should report any gains.

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Maximum Social Security Benefits You Can Get

The maximum monthly Social Security benefit available to someone retiring in 2021 is $3,895, which assumes that:

  • They worked 35 years or more
  • In their 35 top-earning years, their income met or exceeded the SSA’s maximum taxable amount, so that they paid the largest Social Security tax amount possible for each of those years
  • They are retiring at age 70, which entitles them to the maximum delayed retirement credit

For comparison, the table below lists the monthly benefits for workers who plan to retire in 2021 whose earnings met or exceeded the SSA maximum-taxable limit every year of their working lives, from age 22. This situation is far from typical, but it shows the impact of retirement age on Social Security benefits, isolated from other factors.

Maximum Social Security Benefit for Workers Retiring in 2021
Age

Why Did I Get An Extra Payment From Social Security This Month

The extra payment compensates those Social Security beneficiaries who were affected by the error for any shortfall they experienced between January 2000 and July 2001, when the payments will be made. Who was affected by the mistake? The mistake affected people who were eligible for Social Security before January 2000.

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What Income Reduces Social Security Benefits

If you start taking Social Security benefits before you reach full retirement age, any income you earn over the annual limit until you reach full retirement age will lower your benefit eligibility for that year. In 2021, if you are retired and haven’t reached full retirement age, the SSA will deduct $1 from your benefits for every $2 earned over $18,960. In the year you reach full retirement age, the SSA will deduct $1 for every $3 earned over $50,520. For the 2022 tax year, these thresholds are slightly higher, at $19,560 and $51,960, respectively.

How Is Social Security Calculated

How to Calculate Social Security Tax

There is a three-step process used to calculate the amount of Social Security benefits you will receive.

Step 1: Use your earnings history to calculate your Average Indexed Monthly Earnings .Step 2: Use your AIME to calculate your primary insurance amount .Step 3: Use your PIA, and adjust it for the age when you will begin receiving benefits.

You can use a copy of your Social Security statement that provides your earnings history to plug your own numbers into the formulas below.

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How Much Social Security Income Is Taxable

Not all taxpayers are required to pay federal income taxes on their Social Security benefits. Typically, only those individuals who have substantial income in addition to their Social Security benefits are required to pay federal income taxes on Social Security Benefits. If you do have to pay taxes on your Social Security benefits, you can either make quarterly estimated tax payments to the IRS or elect to have federal taxes withheld from your benefits.

How much of your Social Security income is taxable is based on your combined income. Your combined income is calculated by adding your adjusted gross income, nontaxable interest, and one-half of your Social Security benefits.

If you file your federal income taxes as a single person, and your combined incomeis between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $34,000, up to 85% of your benefits may be taxable. If your combined income is below $25,000, all of your Social Security income is tax-free.

If you are married and file a joint return, and you and your spouse have a combined income that is between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $44,000, up to 85% of your benefits may be taxable. If your combined income is below $32,000, all of your Social Security income is tax-free.

Please Visit Washington Update For Latest Insights On Tax Proposals And Other Policy Changes That Could Affect The Markets And Your Financial Life

How much of your Social Security income is subject to tax depends on a variety of factors, including your federal income tax filing status and your modified adjusted gross income. But with a little up-front planning, which can include everything from rebalancing your portfolio to structuring certain transactions in the right way, you may reduce the possibility of taxes derailing your plans.

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How Your Social Security Benefits Are Earned

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.

How Much Of My Social Security Income Is Taxable

How to Access Your Social Security Benefits Statement

Currently, the social security income that is taxable can never be more than 85% of your Social Security income. With that in mind, different circumstances will lead to you needing to pay different amounts of tax on your social security income.

For example, for single filers, if your combined income when filing taxes falls between $25,00 and $34,000 you will be called to pay taxes for up to 50% of your Social Security Benefits. If your combined income surpasses $34,000 then you could be made to pay for up to 85% of your Social Security benefits.

These limits change for married couples, you are only called to pay tax for up to 50% of their Social Security Benefits if they have a combined income between $32,000 and $44,000. If their combined income surpasses the $44,000 mark then they need to pay taxes for up to 85% of their social security income.

Therefore, knowing your specific circumstance will allow you to better determine what part of your Social Security income you will be called to pay taxes on. No matter how much your income is you will never be made to pay income taxes on more than 85% of your social security income.

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Is Social Security Taxed After Age 70

Social Security may continue to be taxed after you reach the age of 70 if you fit the thresholds set forth by the IRS regarding the amount of Social Security benefits that are taxable. Regardless of your age, the thresholds set forth by the IRS do not change. This means that depending on how you file your taxes you may be called to pay further taxes on your social security benefits. This in part is done in cases where the income earned through other sources is the one mainly used to sustain your life, rather than using the Social Security benefits as your predominant income source.

For Single Filers:

  • For a combined income that ranges between $25,000 and $34,000 you will be called to pay taxes on 50% of your Social Security benefits
  • For a combined income that is higher than $34,000 then you will need to pay taxes on 85% of your Social Security benefits

For Joint Filers:

  • For a combined income that ranges between $32,000 and $44,000 you will be called to pay taxes on 50% of your Social Security benefits
  • For a combined income that is higher than $44,000 then you will need to pay taxes on 85% of your Social Security benefits

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