By Charlestien Harris
I know it is past the tax filing deadline of April 15, but very few taxpayers realize that Social Security benefits can be taxable under certain conditions.
One question many people ask me is, “At what age is Social Security no longer taxable?” Here is the simple answer: Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false. So, I thought I would enlighten my audience by discussing the particulars of how the Internal Revenue Service (IRS) goes about figuring out how much of your Social Security benefits are considered taxable income. Your benefits may be taxable if the total of one-half of your benefits, plus all of your other income, including tax-exempt interest, is greater than the base amount for your filing status.
Let’s put that into simpler terms: If your total income is more than $25,000 for an individual or $32,000 for a married couple filing jointly, you must pay federal income taxes on your Social Security benefits. Below those thresholds, your benefits are not taxed. Other considerations include:
- Up to 50 percent of your benefits if your income is $25,000 to $34,000 for an individual, or $32,000 to $44,000 for a married couple filing jointly.
- Up to 85 percent of your benefits if your income is more than $34,000 (individual) or $44,000 (couple).
For purposes of determining how the Internal Revenue Service treats your Social Security payments, “income” means your adjusted gross income (line 11 on your 1040 form) plus nontaxable interest income, plus half of your Social Security benefits. The IRS calls this your “combined” or “provisional” income.
Here are some additional facts to keep in mind as well:
- If your child receives Social Security dependent or survivor benefits, those payments do not count toward your taxable income. That money is taxable if the child has sufficient income (from Social Security and other sources) to have to file a return in their name.
- Supplemental Security Income (SSI) is never taxable.
- If you do have to pay taxes on your benefits, you have a choice as to how: You can file quarterly estimated tax returns with the IRS or ask Social Security to withhold federal taxes from your benefit payment.
The IRS has an online tool you can use to calculate how much of your benefit income is taxable. It can be found at the IRS website. The Social Security Administration estimates that about 56 percent of Social Security recipients owe income taxes on their benefits.
Did you know that you can have taxes withheld from your Social Security benefits voluntarily? You can specify when you file your claim for Social Security benefits that you want federal income taxes withheld from the payments. If you’re already getting benefits and then later decide to start withholding, you will be required to complete a voluntary withholding request, also known as IRS Form W-4V, and submit it by mail or in person to your local Social Security office. Social Security recommends calling in advance and scheduling an appointment to avoid long waits. You will have the option of diverting 7 percent, 10 percent, 12 percent, or 22 percent of your monthly benefits toward your income tax bill. You can also use the same form to change your withholding rate or stop the withholding.
Educating yourself about financial matters can greatly increase your financial health status, and you can start by learning the basics about any topic. Financial literacy does not have to be complicated. There are books, workshops, podcasts, webinars, seminars, and just a number of ways you can tap into the wealth of knowledge that is available to the public. I challenge you to get out there and learn as much as you can about finances – and don’t forget to teach your children and other family members as well. As the old adage goes, “Knowledge is power!” After all, financial literacy is the key to creating and living a healthier financial lifestyle.
For additional information on this and other financial topics, visit our blog at banksouthern.com/blog, email me at Charlestien.Harris@banksouthern.com, or call me at 662-624-5776.
Until next week – stay financially fit!