HomeExclusiveWhen Is Social Security...

When Is Social Security Benefits Taxable

What Percentage Of Social Security Is Taxable

Is Social Security Taxable?

If you file as an individual, your Social Security is not taxable if your total income for the year is below $25,000. Half of it is taxable if your income is in the $25,000$34,000 range. If your income is higher, up to 85% of your benefits may be taxable.

If you and your spouse file jointly, youll owe taxes on half of your benefits if your joint income is in the $32,000$44,000 range. If your income exceeds that, then up to 85% is taxable.

Minnesota Senate Democrats Divided Over Eliminating State Tax On Social Security Income

By Ryan FairclothView saved articles

Minnesotas new Democratic Senate majority is already showing signs of internal friction, with four freshmen pushing leadership to eliminate the states tax on Social Security income.

Newly elected Sens. Grant Hauschild, DFL-Hermantown, Heather Gustafson, DFL-Vadnais Heights, Rob Kupec, DFL-Moorhead, and Judy Seeberger, DFL-Afton, called for repealing the tax in a joint statement Wednesday.

As four incoming Senators who helped deliver the majority to the DFL, we will be making this our top budget priority, they said. Not only does it burden many of Minnesotas seniors, it also leads to retirees leaving the state for others where this benefit is not taxed.

Minnesota is among just 12 states that tax Social Security benefits, according to the AARP.

Lawmakers had agreed to eliminate the Social Security tax in a sweeping deal earlier this year, but the package fell apart in the legislative sessions final days.

Their comments come after DFL Senate Majority Leader Kari Dziedzic expressed skepticism about fully repealing the tax, which generates about $500 million per year. She raised concerns about the budget hole it would leave.

Im on the record for having deep concerns about that, Dziedzic said Tuesday while reacting to Minnesotas record $17.6 billion budget surplus.

Democrats will hold a one-seat majority in the Senate, leaving no room for defection.

Ryan Faircloth covers Minnesota politics and government for the Star Tribune.

Rep Frank Ryan Introduced The 314

Sam Dunklau / WITF

State Rep. Frank Ryan speaks at a meeting of the House State Government committee on Jan 10, 2022.

A state lawmaker has come up with a revised version of a plan he first introduced three years ago that would not only eliminate school property taxes but would make it illegal for a Pennsylvania school district to impose one.

Sam Dunklau / WITF

State Rep. Frank Ryan speaks at a meeting of the House State Government committee on Jan 10, 2022.

Of course, the plan calls for some tax shifting to generate the $16 billion needed to replace the lost property tax revenue for schools. It also includes new taxes on certain retirement income and food and clothing.

Rep. Frank Ryan, R-Lebanon County, on Thursday unveiled his a 314-page House Bill 13 that is the product of five years of work and pulls in the expertise of a bipartisan working group of property tax elimination advocates.

Everybody wants to get rid of property taxes as long as the other person is the one who is going to pay the replacement tax, Ryan said at a Capitol news conference flanked by members of his working group. It is clear that any solution will require sacrifice on the part of all Pennsylvanians.

His plan tries to spread that burden around. It would:

Ryan acknowledges applying the tax on retirement income makes the sales pitch for his plan a tough pill to swallow, but said he believes Pennsylvanians will face that eventuality anyway.

Don’t Miss: Health Savings Account Tax Benefits

Social Security Benefit Changes Coming In 2023 Will Help Retirees

President Joe Biden speaks about his administrations plans to lower prescription drug costs and protect Social Security and Medicare, Saturday, Nov. 5, 2022, at Jones Elementary School in Joliet, Ill.

Inflation has been sky-high over the last year, so its a good thing that the Social Security Administration is boosting its cost of living adjustment for benefit checks in 2023. Its just one of many changes announced by Social Security recently.

Here are some key changes to Social Security that are happening next year:

Cost of living adjustment rises. The Social Security Administration has announced that benefit checks will rise 8.7 percent in 2023. The 8.7 percent adjustment will amount to a $146 increase in monthly benefits for the average retired worker on Social Security, beginning in January. Specifically, the average check for retired workers will increase from $1,681 to $1,827.

Maximum taxable earnings going up. In 2022, the maximum earnings subject to Social Security taxes was $147,000. In 2023, the maximum earnings will increase to $160,200, meaning more of a workers income will be subject to the tax.

Maximum Social Security benefit also set to increase. The maximum Social Security benefit for a worker retiring at full retirement age will also increase in 2023, from $3,345 to $3,627. This maximum applies to those retiring at the full retirement age, which is 67 for anyone born after 1960.

Of course, those are averages, and individual circumstances will vary.

History And Rationale For Taxing Social Security Benefits

Income Tax on Social Security Benefits

For more than four decades, Social Security benefits were not subject to income tax. The Treasury Departments rationale for not taxing Social Security benefits was that the benefits under the Act could be considered as gratuities, and since gifts or gratuities were not generally taxable, Social Security benefits were not taxable.

Former Social Security Commissioner Robert M. Ball long argued that, since Social Security is an earned benefit, it should be taxed like other earned benefits, such as employer pensions. Workers pay income tax on private pensions to the full extent that their benefits exceed their contributions, with no income thresholds.

As a leading member of the Greenspan commission on Social Security in 1982-83, Ball had an opportunity to promote this idea. The subsequent Social Security Amendments of 1983 provided that up to 50 percent of benefits would be taxable for beneficiaries with incomes above certain levels. A decade later, the Omnibus Budget Reconciliation Act of 1993 provided for the taxation of up to 85 percent of benefits for individuals with modified AGI above somewhat higher thresholds. The provision has since remained unchanged.

You May Like: Medicare Dental Benefits For Adults

How Does Full Retirement Age Affect Your Social Security Benefits

If you claim your benefits at full retirement age, you will receive your standard Social Security benefit amount. If you claim prior to FRA, you will be subject to early filing penalties that reduce your benefit by the following amounts:

  • 5/9 of 1% for each of the first 36 months before FRA
  • 5/12 of 1% for each subsequent month before FRA

This amounts to a 6.7% annual reduction for each of the first three years and an additional 5% reduction for each following year before FRA. If you claim benefits at 62 with an FRA of 67, you will face a full 30% reduction in benefits.

By contrast, if you claim benefits after FRA, you receive delayed retirement credits valued at 2/3 of 1% per month. This results in an 8% annual increase to your monthly benefit. Delayed retirement credits can be earned until age 70, after which time there is no financial benefit to delaying your claim. Delayed retirement credits cannot be earned if you are claiming either spousal or survivor benefits.

Also Check: Social Security Disability Dependent Benefits

Example Of Social Security Taxation

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

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.

You May Like: Donating To Charity Tax Benefits

Taxation Of Social Security Benefits

The amount of the taxable Social Security benefits becomes part of your gross income on your tax return. Its still subject to your normal deductions to arrive at your taxable income. You still pay at your normal tax rates on the taxable amount. 50% or 85% of your benefits being taxable doesnt mean youll lose 50% or 85% of your Social Security to taxes. The actual taxation on your benefits is much less. The tax may actually be zero after applying deductions.

The IRS has a somewhat complex formula to determine how much of your Social Security is taxable and how much of it is tax-free. The formula first calculates a combined income that consists of half of your Social Security benefits plus your other income such as withdrawals from your retirement accounts, interest, dividends, and short-term and long-term capital gains. It also adds any tax-exempt interest from muni bonds. This income is then reduced by a number of above-the-line deductions such as deductible contributions to Traditional IRAs, SEP-IRAs, SIMPLE IRAs, HSAs, deductible self-employment tax, and self-employment health insurance. Finally, this provisional income goes through some thresholds based on your tax filing status . All of these steps are in Worksheet 1 in IRS Publication 915.

Control Your Taxes Now & Later

Are your social security benefits taxable?

The longer you wait to claim Social Security benefits, the better chance you’ll have to boost the overall tax efficiency of your retirement income plan. Here’s how.

Drawing down traditional tax-deferred assets before collecting Social Security can enable you to control both your current and future taxes.

The amount you withdraw from a traditional IRA, for example, lowers your account balance, which may reduce your future required minimum distributions .

Since your RMD is considered ordinary income, having smaller distributions while you’re collecting benefits may reduce the taxes on your benefitsor keep you from paying taxes altogether.

In addition, managing your retirement income in this way can also help you qualify to pay lower Medicare parts B and D premiums, which are income-based.

Don’t Miss: Tax Benefits Of Giving Stock To Charity

Is 2023 The Year Biden’s Social Security Plan Becomes Reality

The all-important question is: Will a new year will bring new opportunities for Joe Biden to leave his mark on America’s top retirement program?

The answer is almost assuredly no.

One thing the New Year will bring is a changed Congress. Following midterm elections, Democrats retained control of the U.S. Senate, while Republicans narrowly took back control of the U.S. House of Representatives. In other words, we’re moving from a situation where Biden’s party controlled both chambers of Congress to now only controlling one of them . That sort of deadlock usually leads to little legislation getting passed.

The bigger problem for Joe Biden, and pretty much every president for the past four decades, is that getting the needed votes in the U.S. Senate to amend Social Security has been impossible. Whereas a simple majority of the vote suffices in the House, 60 votes are needed in the Senate to make changes to the Social Security program. Neither party has held 60 seats in the Senate since the late 1970s. This means any major overhaul to Social Security will require bipartisan support.

Even with a different Congress, Joe Biden has virtually no chance to enact his four-point Social Security plan in 2023.

SPONSORED:

The $18,984 Social Security bonus most retirees completely overlook

The Motley Fool has a disclosure policy.

What Is The Average Social Security Benefit Per Month

Social Security offers a monthly check to many types of beneficiaries. As of August 2021, the average allowance is $ 1,437.55, according to the Social Security Administration, but that amount can vary dramatically depending on the type of recipient. In fact, retirees typically earn more than the overall average.

What is the minimum monthly Social Security benefit? This means that for 2020, the minimum social security benefit at 62 is $ 628.

Dont Miss: How To Estimate Social Security Benefits At Retirement

You May Like: How Are Social Security Benefits Taxed In 2021

Social Security Benefits In 2023 Will Rise The Most In 40 Years How Much Will I Get

Social Security recipients will get a hefty raise in 2023, with benefits rising 8.7%, the most in four decades.

The inflation-related bump may coax some retirees into tapping their benefits early, before they reach full retirement age. It also may spark a few questions.

  • How do you apply for Social Security?

  • How are benefits calculated?

  • Are they taxable?

The cost-of-living adjustment, or COLA, will boost the average retirees monthly payment by $146 to $1,827 next year, according to the Social Security Administration . Yet for 70 million retirees, disabled people and others, the increase will simply help them catch up to inflation that hit a 40-year high of 9.1% earlier this year, outpacing the 5.9% COLA they received in 2022, says Mary Johnson, a policy analyst for the Senior Citizen League, an advocacy group.

Heres what you need to know:

IRS Tax Tip 2022-22, February 9, 2022

A new tax season has arrived. The IRS reminds taxpayers receiving Social Security benefits that they may have to pay federal income tax on a portion of those benefits.

Social Security benefits include monthly retirement, survivor and disability benefits. They donât include supplemental security income payments, which arenât taxable.

The portion of benefits that are taxable depends on the taxpayerâs income and filing status.

What Is Supplemental Security Income

Are Your Social Security Benefits Taxable?

Social Security Disability Insurance benefits and SSI benefits differ based on who receives them and why. SSI recipients do not need to meet the same disability or work credit requirements like those who receive Social Security Disability Insurance benefits.

Generally, SSI payments go to the elderly, blind, or disabled. Also, SSI benefit recipients often qualify for Medicaid assistance automatically.

Let an expert do your taxes for you, start to finish with TurboTax Live Full Service. Or you can get your taxes done right, with experts by your side with TurboTax Live Assisted.File your own taxes with confidence using TurboTax. Just answer simple questions, and well guide you through filing your taxes with confidence.Whichever way you choose, get your maximum refund guaranteed.

Read Also: Medicare Additional Benefits By Zip Code

Vermonts Social Security Exemption

Vermonts personal income tax exemption of Social Security benefits reduces tax liabilities mainly for lower- and middle-income Vermonters who are retired or disabled. It does this by excluding from taxable income all or part of taxable Social Security benefits reported on the federal Form 1040, U.S. Individual Income Tax Return, which are included in federal AGI. The exemption does not exclude other types of income.

For those who are married filing jointly and civil union partner filing jointly, the exemption applies in full up to an AGI of $60,000, phases out between $60,000-$70,000, and does not apply to filers with AGI greater than or equal to $70,000. For all other filing statuses, the Vermont exemption applies in full to an AGI up to $45,000. It then phases out smoothly for filers earning between $45,000-$55,000. It does not apply to filers with AGI greater than or equal to $55,000. The exemption reduces a taxpayers Vermont taxable income before state tax rates are applied.

Table 2 illustrates how the Vermont exemption is applied by filing status and income level. Graph 1 shows the percentage of taxable Social Security benefits that are exempt from Vermont taxable income based on filing status and AGI.

How Social Security Disability Works

President Franklin Roosevelt included the Social Security program as part of his New Deal government reforms of the 1930s. The purpose of the New Deal was to lift the country out of the Great Depression and restore its economy. Social Security was designed to provide a financial safety net for older Americans and those with qualifying disabilities.

Most people who receive Social Security disability benefits fall into the former category. They have reached at least the minimum retirement age of 62 and have filed to receive monthly benefits based on the money they paid into the system during their working years.

People who receive Social Security benefits due to a disability do not have to be of a particular age to receive benefits . Instead, their disability must meet the strict criteria laid out by the Social Security Administration .

First, the SSA says, “Your condition must significantly limit your ability to do basic work such as lifting, standing, walking, sitting, and rememberingfor at least 12 months.” The condition must prevent you from doing the kind of work you did previously, and based on your age, education, experience, and transferable skills, you are unable to perform other work.

Additionally, you must not currently be working or working so little that your monthly income is under $1,310 in 2021 . The specific type of disability must be included on the SSA’s approved list or otherwise judged to be of equal severity to a condition on the list.

You May Like: Dairy Farmers Of America Employee Benefits

Taxes On Benefits Support Social Security And Medicare

The proceeds from taxing Social Security benefits provide an increasingly important source of income for both Social Security and Medicare.

  • The revenue from taxing up to 50 percent of Social Security benefits is devoted to the two Social Security trust funds. In 2019, this will provide an estimated $36.9 billion in income to the Old-Age and Survivors and Disability Insurance trust funds, or about 3.5 percent of their total income. Since the income thresholds are not indexed for inflation, taxes on benefits will grow to 7.4 percent of Social Security income by 2028.
  • The revenue from taxing 50 to 85 percent of Social Security benefits is devoted to Medicares Hospital Insurance trust fund. This will represent $24.1 billion, or 7.4 percent, of HI income in 2019 and 12.4 percent of income by 2028.

The taxation of benefits will provide almost $1 trillion to the Social Security and Medicare trust funds over the next ten years. Without this income, the programs would face greater funding shortfalls and earlier reserve depletion dates.

Most Popular

More from Author

Read Now

Social Security Benefits Sign Up

Next Steps For Apply For Ssdi Or Ssi Benefits How To Sign Up For My Social Security Account Online Evidence required by DDS for case documentation ...

How To Sign Up For Medicare Benefits

Quality Of Beneficiary Services How To Apply For Medicare Online - Step By Step A 2001 study by the Government Accountability Office evaluated the quality of responses given by...

When Does Social Security Recalculate Benefits

How Much Can I Earn And Still Get Benefits Will Your Social Security Benefit Be Recalculated? When you begin receiving Social Security retirement benefits, you are considered retired for...

Go Medicare Benefits Health Center

See If You Are Eligible Timestamp: : 12 GoMedicare Benefits HelpCenter TV Commercial: 'Last Days: Enroll for 2021 Benefits' Same Disclaimer Fine Print The fine print...

How To Calculate Social Security Benefits If You Retire Early

What If I Want To Work In Retirement How Social Security Retirement Benefits Are Calculated Sometimes leaving the workforce is neither feasible nor appealing. Thats why some retirees...

At What Age Can You Get Medicare Benefits

Your Social Security Benefits Could Be Reducedtemporarily What Is Medicare? Your age matters here, as well see below, but any reductions that do occur are temporary. The IRS will...

How To Get Medicare Benefit Statement

Get Benefit Verification Letter Medicare and Your CalPERS Health Benefits Get a benefit letter to show that you receive benefits, have submitted an application, or don't receive benefits. ...

California 529 Plans Tax Benefit

Who Is Eligible For A 529 Plan State Income Tax Benefit Tax changes to your 529 plan States typically offer state income tax benefits to any taxpayer who contributes...

How To Increase Social Security Benefits Before Retirement

Consider Working In Retirement Increase Your Social Security Benefit During Retirement Theres no rule that says you cant work and claim Social Security at the same time. There are,...

Do Social Security Benefits Get Taxed

I Just Quit My Job Am I Entitled To Unemployment Benefits Is Social Security Taxable? Social Security benefits are in general for those who have paid taxes while they...

Go Medicare Benefits Help Center Reviews

What Is The Texas Health Information Counseling And Advocacy Program Medicare Advantage Plans Explained (2022) If you are eligible for Medicare, the Texas' Health Information, Counseling and Advocacy Program...

Commonwealth Senior Living Employee Benefits

Benefits Confirmation Statements In Cardinal Ess New Employee Orientation - Welcome to MOSERS Employees eligible for health benefits received emails from "noreply.HRPRD1@doa.virginia.gov" notifying them that Benefits Confirmations are now...