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How To Calculate Social Security Benefits Taxable Amount

What Types Of Social Security Income Taxable

Calculating Taxable Social Security (Taxes on Social Security Benefits) | Part 2 of 2

Actually ,all kinds of social security benefits taxable in the same way. Social security benefits include monthly retirement benefits, survivor, and disability benefits.However, social security benefits paid to a child under his or her Social Security number is taxable to the child, not the parent.

Exception to this rule is Supplemental Security Income which is a non-taxable as it is not considered part of Social Security benefits and does not figure into the taxable benefit formula.

Are Social Security Benefits Taxable

Up to 50% or even 85% of your Social security benefits are taxable if your provisional or total income, as defined by tax law, is above a certain base amount. Your Social Security income may not be taxable at all if your total income is below the base amount.

If youre married and filing jointly with your spouse, your combined incomes and social security benefits are used to figure your total income.

Example Of Social Security Taxation

Let’s say a single, 68-year-old retired woman, Susan, receives a Social Security benefit totaling $18,000 for 2021.

Susan collected $30,000 from other means throughout the year, so her provisional income is $39,000 .

Then, 85% of Susan’s total Social Security benefit, $15,300, is subject to federal income tax.

If you collect Social Security and anticipate you’ll need to pay federal taxes on your benefit, you can make estimated quarterly payments or elect to have federal taxes withheld either 7%, 10%, 12%, or 22% of your monthly benefit. You can also have additional taxes withheld from your other income sources, such as a pension.

Important: The following states also tax federal Social Security benefits, according to AARP: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

Social Security benefits for retirees, beneficiaries, and disabled people are considered a form of income by the IRS. But only a portion is subject to taxation 15% of your total benefit for the year is always tax free.

If your income for the year is more than $34,000, or more than $44,000 if you’re married, then you can expect to pay income taxes on most of the benefits you collected.

If you’d prefer to pay taxes as you go to avoid a large bill during tax season, opt in to withholding by filling out the form and returning it to your local Social Security office by mail or in person.

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When Is Social Security Income Taxable

To determine when Social Security income is taxable, youll first need to calculate your total income. Generally, the formula for total income for this purpose is: your adjusted gross income, including any nontaxable interest, plus half of your Social Security benefits.

If youre married and filing jointly with your spouse, your combined incomes and social security benefits are used to figure your total income.

Then youll compare your total income with the base amounts for your filing status to find out how much of your Social Security income is taxable, if any.

Youll see that you fall into one of three categories. If your total income is:

  • Below the base amount, your Social Security benefits are not taxable.
  • Between the base and maximum amount, your Social Security income is taxable up to 50%.
  • Above the maximum amount, your Social Security benefits are taxable up to 85%.

Calculating Taxes On Social Security Benefits

Tax withholding for pensions and Social Security.

Many people are surprised to learn that Social Security benefits are taxable. But if you look at how the federal tax on Social Security is calculated, you’ll notice that benefits aren’t taxed for most people who only have income from Social Security. For 2020, the estimated average monthly Social Security check is $1,503, which comes to $18,036 per year. That’s well below the minimum amount for taxability at the federal level.

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How Do I Determine If My Social Security Is Taxable

Add up your gross income for the year, including Social Security. If you have little or no income besides your Social Security, you wont owe taxes on it. However, if youre an individual filer with at least $25,000 in gross income, including Social Security for the year, then up to 50% of your Social Security benefits may be taxable. For a couple filing jointly, the minimum is $32,000. If your gross income is $34,000 or more , then up to 85% may be taxable.

How Much Of My Social Security Income Is Taxable

Currently, the social security income that is taxable can never be more than 85% of your Social Security income. With that in mind, different circumstances will lead to you needing to pay different amounts of tax on your social security income.

For example, for single filers, if your combined income when filing taxes falls between $25,00 and $34,000 you will be called to pay taxes for up to 50% of your Social Security Benefits. If your combined income surpasses $34,000 then you could be made to pay for up to 85% of your Social Security benefits.

These limits change for married couples, you are only called to pay tax for up to 50% of their Social Security Benefits if they have a combined income between $32,000 and $44,000. If their combined income surpasses the $44,000 mark then they need to pay taxes for up to 85% of their social security income.

Therefore, knowing your specific circumstance will allow you to better determine what part of your Social Security income you will be called to pay taxes on. No matter how much your income is you will never be made to pay income taxes on more than 85% of your social security income.

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Calculate Social Security And Medicare Tax

This article will help you understand how to calculate the Social Security taxes you owe. Article Sources Investopedia requires writers to use primary sources.

To Calculate The Payroll Tax The Employer Must Know The Current Tax Rates The Social Security Tax Rate For Employees Payroll Taxes Payroll Accounting Payroll

Paying Taxes On Social Security

How To Calculate Taxes on Your Social Security Benefits

You should get a Social Security Benefit Statement each January detailing your benefits during the previous tax year. You can use it to determine whether you owe federal income tax on your benefits. The information is available online if you enroll on the Social Security website.

If you owe taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or have federal taxes withheld from your payouts before you receive them.

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A Look At How It Works

Now that we know how to calculate provisional income and the various taxation thresholds, we can determine how much of a hypothetical Social Security recipient’s benefit will be taxed. Let’s say a married couple takes $35,000 in distributions from their 401, plus they’re getting $40,000 in Social Security benefits. They don’t receive any tax-exempt interest.

This means their provisional income would be $35,000 + which equals $55,000. Using the taxation chart above, we know the first $32,000 is completely tax-free.

From there, we can see that 50% of any income over $32,000 and under $44,000 is going to be taxed. It’s important to note that this doesn’t mean that income in that range is taxed at 50%, but rather, half of the income in that range is subject to taxation. In other words, this couple will be paying taxes on $6,000 of their Social Security income within that range .

Finally, they made $11,000 over $44,000, which means 85% or $9,350 will be taxed.

Therefore, out of the couple’s total Social Security income of $40,000, only $15,350 is subject to taxation. Once again, this doesn’t mean they’ll be paying $15,350 in taxes, but rather that this is the only portion of their benefit that will be taxed.

How Federal Taxes On Social Security Are Calculated

Once you start collecting Social Security benefits, you’ll get a Social Security benefits statement in the mail each year in January showing the total amount of benefits you received in the previous year. To figure out how much, if any, of the total amount may be taxed, the first thing you need to do is calculate your “provisional income.” Your provisional income is generally equal to the combined total of 50% of your Social Security benefits, your tax-exempt interest, and the other non-Social Security items that make up your adjusted gross income .

For single people, your Social Security benefits aren’t taxed if your provisional income is less than $25,000. The threshold is $32,000 if you’re married and filing a joint return. If your provisional income is between $25,000 and $34,000 for a single filer, or from $32,000 to $44,000 for a joint filer, then up to 50% of your Social Security benefits may be taxable. If your provisional income is more than $34,000 on a single return, or $44,000 on a joint return, up to 85% of your benefits may be taxable.

The IRS has a handy calculator that can help you determine whether any of your Social Security benefits are taxable and, if so, how much. Once you know how much is taxable, that amount is included on Line 6b of Form 1040 and becomes part of your taxable income. That income is then taxed with other income according to your tax bracket.

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Know The Earnings Limits

Those hoping to work in retirement need to be especially careful if they’re planning to claim Social Security benefits early. Even if youâre just working part-time, itâs important to consider how that continuing income will affect your benefits.

The SSA caps how much you are allowed to earn if you start taking your benefits before full retirement age, which is 66 for most baby boomers. For the most recent annual earned income cap, view the current annual contribution limits. For every $2 you earn over the limit, the SSA withholds $1 off the top of your benefits. Once you reach the year that you’ll turn full retirement age, the earned income cap goes up, and for every $3 you go over, itâs a $1 withholding during the months until your birthday.

There is some good news, however: Because the penalty is determined by your individual earned income, if you retire early but your spouse doesn’t, your spouse’s earned income will not be factored into the earnings limit. Additionally, when you reach your full retirement age, the earnings limit disappears and Social Security will recalculate your benefit amount if you were negatively impacted by the earnings limit.

Keep in mind, if you file your tax return jointly, your spouse’s earnings will be included when calculating your combined income for purposes of determining the taxation of your benefits.â1

Social Security Basics: Boosting Benefits

How To Calculate Social Security Retirement

How do you know to boost benefits? More specifically, how do you know when to claim your benefit so that it equals a certain amount? Benefits depend on several variables, but mostly your earnings history and your full retirement age. Claiming before your full retirement age lowers your Primary Insurance Amount , which is another term meaning your benefit payment. If you claim after your full retirement age, you can boost your benefit. Determine your PIA first, and then use a benefit calculator to see when it will be equal to whatever amount you want to set it.

Not everyone can wait to claim benefits, so deciding when to claim is a big decision. When learning the Social Security basics, its important to know that in particular. Carefully plan your retirement by knowing how your benefits are affected by your age.

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Avoiding Social Security Benefit Taxes

You might be able to tweak your spending if your combined income is close to the taxation thresholds listed above to reduce or avoid taxes on your Social Security benefits. Consider cutting back on spending or withdrawing more money from your Roth savings, if you have any, because this money does not count toward your combined income for the year. Charitable donations will also help reduce your combined income because you can write these off on your taxes.

If you’re still working, consider delaying Social Security until you retire. This could help lower your combined income because you stop getting paychecks, which in turn might help you avoid Social Security benefit taxes. It’ll also help boost your Social Security checks when you do finally begin claiming them. But don’t delay your Social Security benefits past age 70. Your checks won’t increase anymore after this, and avoiding Social Security benefit tax isn’t worth giving up all the money your Social Security checks could provide.

Social Security benefit taxes aren’t the easiest thing to understand, but it’s important that you take the time to learn the rules. It can help you make more educated decisions about your Social Security benefits and your retirement savings so you can hold on to more of your hard-earned cash.

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Calculate Your Bend Points

This step allows you to calculate your primary insurance amount . Social Security is set up so that lower income workers have a higher percentage of their wages replaced upon retirement. The more you earn, the lower the percentage of your working wages that you will receive. These different tiers, or bend points, are set by law. Here is how they work. Your PIA is calculated by finding the sum of 90% of your AIME up to $926, 32% of AIME between $926 and $5,583, and 15% of AIME above $5,583. For example, if you have an AIME of $800, then your PIA would be $720 per month. Now it is time to make any necessary adjustments to your PIA.

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To Find Out If Their Benefits Are Taxable Taxpayers Should:

  • Take one half of the Social Security money they collected during the year and add it to their other income.

Other income includes pensions, wages, interest, dividends and capital gains.

  • If they are single and that total comes to more than $25,000, then part of their Social Security benefits may be taxable.
  • If they are married filing jointly, they should take half of their Social Security, plus half of their spouse’s Social Security, and add that to all their combined income. If that total is more than $32,000, then part of their Social Security may be taxable.

The Tax Is Also Subject To An Income Cap

Is Social Security Taxable?

Kirsten Rohrs Schmitt is an accomplished professional editor, writer, proofreader, and fact-checker. She has expertise in finance, investing, real estate, and world history. Throughout her career, she has written and edited content for numerous consumer magazines and websites, crafted resumes and social media content for business owners, and created collateral for academia and nonprofits. Kirsten is also the founder and director of Your Best Edit find her on LinkedIn and Facebook.

The Old-Age, Survivors and Disability Insurance program taxmore commonly called the Social Security taxis calculated by taking a set percentage of your income from each paycheck. Social Security tax rates are determined by law each year and apply to both employees and employers.

For both 2021 and 2022, the Social Security tax rate for employees and employers is 6.2% of employee compensation, for a total of 12.4%. Those who are self-employed are liable for the full 12.4%.

The combined taxes withheld for Social Security and Medicare are referred to as the Federal Insurance Contributions Act . On your pay statement, Social Security taxes are referred to as OASDI, and Medicare is shown as Fed Med/EE. Both Social Security and Medicare are federal programs that provide benefits for retirees, people with disabilities, and children of deceased workers.

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How Much Do You Get For Social Security Retirement

How much you get for Social Security retirement benefits will depend on a number of factors, including your income, how long you worked and when you retired. One thing youll need to consider when getting your retirement benefits or when planning for Social Security retirement is that it may be taxed.

If you have a combined income but are filing as an individual, your benefits arent taxed if your benefits are below $25,000. If your income is above that but is below $34,000, up to half of your benefits may be taxable. For incomes of over $34,000, up to 85% of your retirement benefits may be taxed.

For the purposes of taxation, your combined income is defined as the total of your adjusted gross income plus half of your Social Security benefits plus nontaxable interest. Other wages that may be applied to this include self-employment income, wages, capital gains and dividends or other investment income from interest, annuities, pensions, rental property profits, municipal bond interest and withdrawals from retirement accounts such as IRAs, 403 and 401 accounts. Roth IRA withdrawals dont count toward combined income.

Obtain An Estimate Online

This is the easiest way to get an estimate of your Social Security income. You will simply need to register for your personal my Social Security account at www.SSA.gov. Once you create your account, you will have access to a number of features including a retirement estimator. This benefit calculator allows you to estimate your retirement income, and it will even take into account your future earnings by making a few assumptions. You can simply adjust the numbers regarding your current salary and future wage increases, and the calculator will provide an estimate almost immediately. In addition to these calculators, you can also view your Social Security statement which shows your Social Security earnings history and other important information. To gain access, you will simply need to provide your Social Security number, date of birth, and a few other pieces of identifying information.

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