As we dive into whether your Social Security benefits will be taxed, bear in mind that it’s at the federal level in which social security income is generally taxable. And it’s your income tier that determines whether or not you have to pay taxes on your social security benefits. Some determining factors would be income sources such as 401(k), a part-time job or other origins of retirement income. Most likely, you will not be required to pay taxes on your benefits if you rely solely on your Social Security checks.

How do I determine the tax amounts on my Social Security income?

Per the IRS, the best method for ascertaining taxes owed on your Social Security income is to determine 1/2 of your Social Security benefits and add that to the sum of all your other sources of income. This would include tax-exempt interest. This amount is referred to as your combined income.

You can expect to pay social security benefits tax if your combined income is higher than what the IRS refers to as the base amount. Married couples who chose to file separately, may be required to pay taxes on the income they are receiving from Social Security.

What’s the calculation process for paying Social Security income taxes?

If you have resolved that your Social Security income is taxable, the payment amount will be determined by your total combined retirement earnings. Keep in mind that you will never be required to pay taxes on more than 85% of your Social Security benefits.

Currently, you won’t have to pay taxes on your Social Security benefits if you are filing as an individual whose total income is less than $25,000. For example, when filing in 2023 for the 2022 tax year, those who file as single having a combined income of $25,000 to $34,000 are required to pay taxes on up to 50% of their Social Security earnings. If that combined income exceeds $34,000, you”ll be required to pay taxes on up to 85% of your Social Security  benefits.

Married people who file joint tax returns, who have a combined income of $32,000 to $44,000, can expect to pay up to 50% of their Social Security benefits. Furthermore, combined incomes of more than $44,000, can anticipate paying on upwards to 85% of their Social Security earnings.

What are my next steps to fling my Social Security income taxes federally?

Simply enter the calculated amount of your Social Security taxable income on your tax form. Locate the total amount of your benefits from box #3 of the SSA-1099 form. Then input the total figure of your Social Security earnings from line 5a as well as the taxable figure from line 5b and enter them on the 1040 tax form.

How can I streamline my Social Security income for tax purposes?

During employment, an employer usually withholds payroll taxes from the paycheck; meaning they take out the appropriate amounts for social security. It’s important to understand that if you made enough retirement income to require paying federal income tax, this would then require you to withhold taxes from your monthly income. To do so, it’s necessary that you utilize the W-4V (Voluntary Withholding Request) tax form. Your personal information will need to be disclosed on this simple 7 line form. Then choose an approximate percentage to withhold; thay are 7%, 10%, 12% or 22% of your monthly Social Security benefit.

If you favor paying a more precise withholding amount, you can opt to file your own estimated tax payments rather than having the taxes withheld by the Social Security Administration. These tax payments are made quarterly. You may be familiar with them if you’ve ever earned income from self-employment.

Generally, it’s simpler for retirees to have their taxes withheld via the SSA. Estimated payments are slightly more complex and basically require more work from you throughout the year. Ultimately, you must base the decision on your own individual circumstances and you can request the SSA to cease withholding at any time necessary.

How is my Social Security income taxed by the state?

Thus far, we’ve covered Social Security Benefits from a federal tax standpoint. State taxes come into play, however, depending on which state you reside. Therefore, it’s wise to be prepared that you may also be required to pay state taxes.

Based on the 12 states that do collect taxes for Social Security benefits, there are two; Minnesota and Utah, which follow parallel tax rules as the federal tax laws.  So, if either of these 2 states are your residence, expect to pay that state’s regular income tax rate on your taxable income; up to 85% of your income.

All 50 US states follow the federal guidelines for taxation, so with regard to the other 9 states (plus DC) jurisdictions, you may not be taxed on the full taxable amount if you qualify for certain credits or deductions based on age or income.

What is the impact of Roth IRA’s on my Social Security taxes?

We would all agree that saving money in retirement is a win.  A clear option is by the way of a Roth IRA.  If you worry about Social Security income tax implications in your later life, Roth IRA’s offer you to save your after-tax dollars. You are not required to pay taxes when withdrawing contributions because you pay taxes on the income prior to contributing to your Roth IRA. After retirement, it’s also not mandated that you withdraw the funds on a particular schedule. Your withdrawals from a Roth IRA do not count against you when factoring the combined income on your Social Security taxes. Therefore, the Roth IRA is a fantastic avenue to increase retirement savings without raising your federal or state taxation during that time of life.

So what’s the bottom line?

It’s pretty safe to say that everyone wishes to pay as minimal as possible when it comes to Social Security Benefits taxes. This rings true particularly during retirement when the majority of us have a set amount of saved income. Let’s be honest, you’re probably in a good financial standing if you have enough retirement income that requires tax payment on your Social Security benefits. This means that you are not entirely dependent on your social security benefits to make ends meet and that you do have income from other avenues.  However, the goal remains to save on taxes in your golden years and can be done so quite easily; merely by having intention.

Any tips for saving on taxes during my retirement?

When you participate in the Planning Made Simple community you have the opportunity to work with a financial coach who can provide useful advice and insights about retirement planning. A great way to find the right coach for you to find someone who offers comprehensive services and answers your questions. When you find a financial coach you’re comfortable working with you can ask them questions, get your retirement on track and focus on the life you want to live. At Planning Made Simple, we want to connect you with like-minded investors and coaches who can help you make better financial decisions so you can live the life you want. Let’s begin this journey together!