Social Security Benefits and Taxes: What You Need to Know
Contributor: Jack Callahan, Partner
Most people know that Social Security (SS) benefits are taxable. Still, many of us don’t fully understand how the tax rate on Social Security is applied. If SS represents your only income, it’s likely that your benefits aren’t taxable. However, if your monthly Social Security income is augmented by other taxable income, then 50 percent or 85 percent of your monthly benefit may be subject to federal income taxes (and possible taxation at the state level as well). Other forms of taxable income may include earnings from:
The IRS may even consider withdrawals from tax-deferred retirement savings taxable income that can impact your SS benefits.
What To Know About Social Security Taxes
The good news? No matter how much additional income you bring in, no taxpayer has their entire Social Security income taxed. Once you’ve determined your adjusted gross income from other earning streams, you must add any tax-exempt interest. Finally, taxpayers should add half of their SS benefits to these other earnings to determine a general idea of how much of overall combined income is taxable.
Social Security: Schedule of Rates
Once you’ve determined the combined-income total that’s subjected to being taxed, it’s essential to apply a schedule of rates to pinpoint your specific obligation. Some general considerations include:
Individual Tax Rates
If you file your taxes as an individual, your schedule of rates on your combined income typically follows these guidelines:
- If combined income is between $25,000 – $34,000, you may be taxed on up to 50 percent on your Social Security benefits
- If combined income is more than $34,000, you may be taxed on up to 85 percent on your Social Security benefits
Married Tax Rates
Couples who file a joint tax return fall under a different schedule of rates, based on these general guidelines:
- If combined income falls between $32,000 and $44,000, you may be taxed on up to 50 percent of your Social Security benefits
- If combined income is greater than $44,000 you may be taxed on up to 85 percent on your Social Security benefits
It’s important to note that if you’re married and opt to file a separate tax return, your Social Security income will be taxed based on the individual schedule of rates.
Not All Social Security Benefits are Taxable
If you have little or no additional income streams beyond Social Security, chances are, your benefit will not be taxed. On average, SS recipients are paid approximately $1,461 every month, for a total of roughly $17,532 each tax year. To be assessed for SS tax, a taxpayer’s overall income must surpass $25,000 for individuals or $32,000 for married couples filing job returns.
Working After Retirement: Will it Impact Your Benefits?
Of course, not everyone stops working entirely after retirement. If you’re planning on working after you retire, it’s crucial to understand how it may impact your tax rate and overall monthly income. The Social Security Administration (SSA) puts a limit on how much taxpayers are allowed to earn if they opt to tap into SS benefits before the full retirement age (typically 66 years old). For the 2019 tax year, the annual earned income limit is $17,640. For every $2 that exceeds the designated threshold, the SSA withholds $1 off the top of your total benefits. Once a taxpayer reaches full retirement age, the earned overall income gap extends to $46,920. For every $3 over that amount, the SSA may withhold $1.
Wondering how SS taxes will impact your benefits? Contact the Leone, McDonnell & Roberts team today to speak with one of our licensed and certified accounting specialists.