“Will I have to pay taxes on my Social Security?” That’s one of the most common questions I get from people thinking about retirement. For 56% of retirees the answer is yes, and depending on your income you’ll be taxed on either 50% or 85% of your benefit. The category you fall into is based on your combined income which the IRS defines as:
Adjusted gross income (AGI) + nontaxable interest +half of your Social Security benefit
Then, you look at income and filing status.
Single Filers
- If you are a single filer and combined income is under $25,000, your Social Security benefit is not taxed.
- If you are a single filer and combined income is between $25,000-$34,000 you will pay taxes on 50% of your benefit.
- If you are a single filer and combined income is above $34,000 you will be taxed on 85% of your benefit.
Joint Filers
- If you file a joint return and combined income is below $32,000 your Social Security benefit is not taxed.
- If you are a joint filer and combined income is between $32,000-$44,000 you’ll pay taxes on 50% of your benefit.
- If you file a joint return and combined income is above $44,000 you will pay taxes on 85% of your benefit.
How to calculate tax on Social Security benefits
To calculate the tax on your benefit, determine your combined income and see which of the categories you fall into above. Then multiply the amount of your benefit listed on Form SSA-1099 by the percentage of your benefit to be taxed and enter that amount on Line 6b of Form 1040. For example:
- If a single filer has income of $50,000, 85% of Social Security benefit will be taxed.
- Benefit amount listed on Form SSA-1099 – $12,000.
- $12,000 x 85% = $10,200.
$10,200 of the Social Security benefit in this example would be reported as taxable income.
Tax on lump-sum payment from Social Security
When an individual begins taking Social Security they are offered a lump-sum payment equal to six months of benefits. When calculating taxes on your Social Security benefits, you must include the lump-sum payment along with your monthly benefit amounts.
Note: Lump-sum retirement benefits are different than lump-sum death benefits. No part of a lump-sum death benefit paid by the Social Security Administration (SSA) is taxable.
Withholding taxes from Social Security payments
While It’s not required, you have the option of having taxes withheld from your Social Security check just like you did when you were getting a paycheck. Some people choose that option to make sure the IRS doesn’t hit them with an underpayment penalty at tax time.
To have taxes withheld from your Social Security benefit, you file IRS form W4V, the Voluntary Withholding Request. You can ask for 7 percent, 10 percent, 12 percent or 22 percent be withheld; those are the only choices.
Once withholding is set up on your Social Security payment, the decision is not chiseled in stone. If you find out later that withholding isn’t necessary to keep you in the good graces of the IRS simply submit a new W4V revoking the withholding option.
If you prefer not to have taxes deducted from your monthly Social Security payments, you can make quarterly estimated tax payments.
State tax on Social Security benefits
In addition to federal taxes on Social Security, some states also tax Social Security benefits. Although you can’t have state taxes withheld like you can at the federal level, you may be able to offset the state tax bite by making estimated state tax payments. The best place to get information about your state’s estimated tax payment rules is at the state Department of Revenue.
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