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When Is Social Security Benefits Taxed

How Much Social Security Will I Get

Is Social Security Taxable?

SSA calculates your benefit based on the monthly average of up to 35 of your highest earning years rather than, say, your last five years. The earnings are indexed to the change in overall wage levels and the rise in the nationâs standard of living while you were employed. Your future benefits thus will reflect that rise.

A Social Security calculator can help you figure out your benefits.

When checking whether your earnings record is correct or not, keep in mind theres no statute of limitations on correcting errors related to wages, according to Kurt Czarnowski, a principal at Czarnowski Consulting.

A person needs to provide proof of what the correct amount of earnings was, Czarnowski said at a recent National Association of Personal Financial Advisors conference. But even if itâs something back in 1976, if happen to have W-2, can make that correction.

Delay or not?Should you hold off taking Social Security retirement benefits? Hereâs what to consider

Also, be aware that someone who chooses to draw benefits at the earliest possible age 62 would see their payment reduced by as much as 30%. By contrast, workers who delay retirement past their full-retirement age 66 or 67 for most people would see an 8% increase in benefits for each year they wait until 70.

Make Sure Youre Taking Your Maximum Capital Loss

If youve invested in stocks or bonds and have a loss on paper, you might want to sell and realize that loss so you can claim it as a tax deduction. The process is called tax-loss harvesting, and it can net you a sizable deduction from your income.

The tax code allows you to write off up to a net $3,000 each year in investment losses. A write-off first reduces any other capital gains that youve incurred throughout the year. For example, if you have a $3,000 gain on one asset but a $6,000 loss on another, you can claim a deduction for the full $3,000 net loss.

Any net loss beyond that $3,000 has to be carried forward to future years, at which point it can be used. And even if you cant realize the full value of that net loss, it can still make sense to realize some loss, especially if it pushes your Social Security benefit into the tax-free area.

Tax-loss harvesting works only in taxable accounts, not special tax-advantaged accounts such as an IRA.

What Is Social Security

Social Security is a federal program that pays monthly benefits to retirees, surviving spouses and children, and disabled people. About 65 million Americans collect Social Security monthly.

The money for Social Security, as well as Medicare, comes from a tax that every working American pays. It’s a 7.65% tax on every paycheck that is matched by employers. Self-employed people cover both the employee and employer portions. That tax is levied on the first $147,000 of a worker’s income in the 2022 tax year.

So, while workers pay a tax to fund the Social Security program, other people are benefiting by collecting a monthly check. Those benefit checks are then often taxed as income, returning a portion of the money to the federal government.

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Calculator: How Much Of My Social Security Benefits Is Taxable

September 15, 2022Keywords: calculator, retirement, Social Security, tax planning

Social Security benefits are 100% tax-free when your income is low. As your total income goes up, youll pay federal income tax on a portion of the benefits while the rest of your Social Security benefits remain tax-free. This taxable portion goes up as your income rises, but it will never exceed 85%. Even if your annual income is $1 million, at least 15% of your Social Security benefits will stay tax-free.

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When Do I Pay Tax On Disability Benefits

States That Tax Social Security Benefits

The rules for determining whether federal tax is owed on LTD or STD income depend on two things:

  • Who paid the premiums you or your employer?
  • How were premiums paid with pre-tax dollars or after-tax dollars?

Generally speaking, the tax rules work like this: if your employer paid the premiums, then the income you get on disability is taxable. Likewise, if you paid the premiums with pre-tax dollars, then your disability income is also taxable. However, if you paid the premiums with after-tax dollars, then your disability income payments are free from federal taxes. In other words, the IRS either takes tax upfront , or they take tax on the back-end . That means:

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Q: Why Havent The Income Thresholds For The Tax On Social Security Benefits Been Adjusted

A: Some policy experts say that fixing the income thresholds was the intention of Congress. But the record is not clear. In 1984, the tax was estimated to affect roughly 10 percent of the highest – income Social Security recipients. In fact, a review of the news archives of the time suggest that the new tax on benefits was sold to the public as affecting the wealthiest Social Security recipients. Today the tax can affect roughly 50 percent or more of all Social Security recipients. Had the income thresholds been adjusted for inflation since 1984, the $25,000 level would be about $72,660, and the $32,000 level would be $93,000. TSCL supports legislation that would adjust these income thresholds.

About Half Of All Seniors Receiving Social Security Will Owe Some Amount Of Tax On Their Benefits This Year

Whether you realize it or not, Social Security truly is an incredible program. Each month, it’s doling out almost 64 million benefit checks that are ultimately being leaned on by more than 15 million retired workers to pull themselves out of poverty. These monthly payouts also go to the survivors of deceased workers and the long-term disabled, many of which might struggle to make ends meet without this guaranteed financial lifeline.

But what you might be surprised to learn as a retired worker, or perhaps a future retiree, is that your Social Security benefit may be taxable. Why, you ask? That’s not a simple answer, so let’s dig into some of the history behind why the tax on benefits was introduced, as well as discuss why it’s not going away anytime soon.

Image source: Getty Images.

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What To Do To Minimize Your Tax Bite

Experts say the goal is to identify a blend of retirement income that works for your personal situation and keeps your total or combined income under certain limits.

If you have money saved both in retirement and other accounts, you may be able to come up with an estimate using tax software and varying the amount of IRA withdrawals, Elsasser said.

“But this is definitely the area of tax-focused financial planners,” Elsasser said.

Whatever your budget is, you should shoot to figure out where that income is going to come from by Jan. 1, according to Vosberg.

“Don’t wait to see your CPA by April 15 it’s too late,” Vosberg said. “The income you’ve already received is pretty much set in stone.”

Beneficiaries who continue with the status quo of retirement withdrawals and bank interest may find themselves paying more taxes at the end of next year if they’re not proactive, he said.

To minimize your tax bite, try taking withdrawals from nontaxable income sources, such as Roth individual retirement accounts, Vosberg said.

As Federal Reserve rate hikes go into effect, it would be wise to also pay attention to how much interest you may be making on savings, including money market accounts and certificates of deposit, that can increase your income, he said.

Keep in mind that having higher income due to the Social Security COLA may also affect how much you pay for health-care coverage, Vosberg said.

Before You Make Your Decision

How is Your Social Security Taxed?

There are advantages and disadvantages to taking your benefit before your full retirement age. The advantage is that you collect benefits for a longer period of time. The disadvantage is your benefit will be reduced. Each persons situation is different. It is important to remember:

  • If you delay your benefits until after full retirement age, you will be eligible for delayed retirement credits that would increase your monthly benefit.
  • That there are other things to consider when making the decision about when to begin receiving your retirement benefits.

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Income Taxes And Your Social Security Benefit

Some of you have to pay federal income taxes on your Social Security benefits. This usually happens only if you have other substantial income in addition to your benefits .

You will pay tax on only 85 percent of your Social Security benefits, based on Internal Revenue Service rules. If you:

  • file a federal tax return as an “individual” and your combined income* is
  • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
  • more than $34,000, up to 85 percent of your benefits may be taxable.
  • file a joint return, and you and your spouse have a combined income* that is
  • between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
  • more than $44,000, up to 85 percent of your benefits may be taxable.
  • are married and file a separate tax return, you probably will pay taxes on your benefits.
  • Dont Forget Social Security Benefits May Be Taxable

    Tax Tip 2020-76, June 25, 2020

    Taxpayers receiving Social Security benefits may have to pay federal income tax on a portion of those benefits.

    Social Security benefits include monthly retirement, survivor and disability benefits. They don’t include supplemental security income payments, which aren’t taxable.

    The portion of benefits that are taxable depends on the taxpayer’s income and filing status.

    Read Also: How To Apply For Social Security Retirement Benefits Online

    State Taxes On Social Security

    Twelve states tax Social Security benefits in some cases. Check with your state tax agency if you live in one of these statesColorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, or West Virginia. As with the federal tax, how these agencies tax Social Security varies by income and other criteria.

    At What Age Is Social Security Not Taxable

    States That Tax Social Security Benefits

    Between the ages of 65 and 67, depending on the year of birth, you are at full retirement age and are eligible for tax-free Social Security retirement benefits.

    At what age can you earn unlimited income on social security?

    You can earn any amount and not be affected by the Social Security income test once you reach full retirement age, or FRA, which is 66 and 2 months if you were born in 1955 and will gradually increase to 67 for people born in 1960 and later.

    Do you pay tax on Social Security after age 66?

    Once you reach full retirement age, your Social Security benefits will not be reduced, no matter how much you earn. However, social security benefits are taxable. If your total income is greater than $ 44,000, up to 85% of your benefits may be subject to income tax.

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    Social Security Benefits In : How Much Will Your Benefits Increase

    Social Security benefits have been helping retirees cover their retirement expenses for decades now. Officially known as the federal Old-Age, Survivors, and Disability Insurance program, Social Security is a federal program that offers retirement benefits to certain qualified retirees, disabled individuals, and their spouses and children. Social Security is the biggest benefits program in the world. President Franklin D. Roosevelt set up Social Security under the Social Security Act in 1935. The monthly average Social Security check was just about $22.60 then. In 2021, it is $1,565.

    There are specific qualification criteria for Social Security benefits. You can qualify for these benefits if you are fully insured and have earned enough credits. These credits can be achieved on your income. They are also known as quarters and are awarded to you for every $1,470 that you earn. For every $1,470, you get one quarter. An individual can earn up to four credits or quarters in a year. In total, you would need 40 quarters to qualify for a Social Security benefits check in retirement. You can start receiving the benefits as soon as you reach the age of 62 years. However, if you wait to draw your check till the age of 70, you can get a higher check. To understand the benefits of delaying your Social Security checks in detail, get in touch with a professional financial advisor who may guide you on the same.

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    Social Security Benefits In : 5 Big Changes Retirees Should Plan For

    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 happening next year and what you need to know.

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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%.

    Social Security Is Taxed More Favorably Than Private Pensions

    Good Question: Why Are Social Security Benefits Taxed?

    The income tax treatment of Social Security benefits is considerably more favorable than that of private defined-benefit pensions, which are otherwise similar to Social Security. Because of the income thresholds and the 50- and 85-percent limits, only about 30 percent of Social Security benefits are currently subject to income taxation. In contrast, defined-benefit pensions are fully taxable except for the typically small portion representing the employees own after-tax contributions.

    CBO and the Joint Committee on Taxation estimate that taxing Social Security and Railroad Retirement benefits in exactly the same way as private pensions would raise $411 billion in additional revenues over ten years. Stated another way, the current tax treatment of Social Security provides beneficiaries with a $411 billion tax reduction, relative to the tax treatment that private pensions face.

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    Five Ways Social Security Will Be Changing In 2022

    There are 5 significant ways Social Security will be changing in 2022. What you need to know.


    By now, you have probably heard that every day 10,000 or so baby boomers are turning 65. The Coronavirus may have pushed millions of Americans to retire earlier than expected. Some of you reading this have already entered retirement. Ive been helping with peoples retirement planning long enough to know that many of you are likely counting the days until you reach financial freedom and can leave the full-time workforce. For many, Social Security benefits will be a significant part of their income in retirement. With that in mind, it is essential to know how Social Security will be changing for 2022.

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    Only In Certain States Or If Your Income Exceeds The Federal Limits

    A Tea Reader: Living Life One Cup at a Time

    Social Security disability benefits may be taxable if you have other income that puts you over a certain threshold. However, the majority of people who receive Social Security benefits do not have to pay taxes on their benefits because most people who meet the strict criteria to qualify for the program have little or no additional income.

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    Check In With Your Accountant Or Financial Advisor

    I always think it’s best to run the numbers by your accountant or other financial advisor. It’s great to be able to continue to work for many reasons. In fact, the Bureau of Labor Statistics projects the biggest annual increase in the labor force through 2024 will be in the 65 to 75 age group. But make sure you know what continuing to work at this point in life means in terms of your overall financial situation.

    Have a personal finance question? Email us at Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.

    Why Retiring At 62 Is A Good Idea

    States That Tax Social Security Benefits

    Probably the biggest indicator that its really ok to retire early is that your debts are paid off, or theyre very close to it. Debt-free living, financial freedom, or whichever way you choose to refer it, means youve fulfilled all or most of your obligations, and youll be under much less strain in the years ahead.

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    Q: What If Social Security Is Your Only Source Of Income

    A: When your only source of retirement income is Social Security, you probably wont pay any federal income taxes on that income, according to the Social Security Administration. But from 50% – 85% of Social Security income may become taxable if you have income from other sources, such as savings from a traditional IRA or 401, pension payments, or earnings from a job or other sources.

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