Social Security Taxation
Many people worry about when they can begin receiving Social Security benefits. But it’s not the when you should concern yourself with: it’s the how much. Depending on your circumstances, you could pay taxes of up to 85% on your Social Security benefits.
Before you plan a post-retirement trip across the country or line up a greeter job at your local department store, take a close look at your income and Social Security benefit amounts. Your total income—wages, self-employment, interest, dividends, and other taxable income—helps dictate how much you and Uncle Sam will benefit from your retirement.
The portion of Social Security benefits that you must include in gross income depends on whether your modified adjusted gross income (MAGI), increased by one-half of the Social Security benefits you received during the year (adjusted MAGI) exceeds certain thresholds.
Here’s how to tell what you could be facing:
- If you file an individual federal tax return and have an adjusted MAGI between $25,000 and $34,000, you could pay income tax on up to half of the Social Security benefits you received that year. If your adjusted MAGI exceeds $34,000, you could be taxed on as much as 85% of your Social Security benefits.
- If you file a joint return and together you and your spouse have an adjusted MAGI between $32,000 and $44,000, you could have to pay taxes on 50% of your benefits. Greater than $44,000? Your Social Security benefits could be taxed up to 85%.
- If you are married, live with your spouse, but file a separate tax return, your minimum income for Social Security taxation is $0.
Other factors—including benefits repaid by an individual; worker’s compensation benefits; lump-sum payments; and exclusions for such items as Series EE U.S. Savings Bonds, foreign earned income, income from U.S. possessions, and higher education savings bond interest—apply. An expert can not only help you get through this year’s tax return, but can also help you make important adjustments to your near- and long-term plans.
To discuss ways to potentially reduce your Social Security taxation contact us at 440-617-6697.