SOCIAL SECURITY
Do you need to pay taxes on your social security benefits?
When someone begins to receive Social Security benefits a common question that arises is whether or not they will need to pay taxes on their benefits.
In 1984, US tax law was updated to impose income taxes on social security beneficiaries who have an annual income above a certain limit. When the law was established only around one in ten recipients was required to pay income tax; today that figure is close to fifty-six percent.
Source: Internal Revanue Service
The Social Security Administration projects that through 2050, the percent of beneficiaries required to pay income tax is expected to increase to fifty-six percent between 2025 and 2050.
No Social Security beneficiary will ever have to pay more than eighty-five percent of their benefits in taxes. Those who do end up paying taxes usually are required to do so because they are earning an income from other sources.
These other income sources typically take the form of "wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return."
Income Limits and Tax Requirements
- You are required to file a tax return if: as an 'individual' and your combined income is between $25,000 and $34,000. Within this range a Social Security beneficiary may be required to pay income tax on up to fifity percent of your benefits. After the $34,000 threshold is surpassed, the IRS may tax up to eighty-five percent of your benefits.
- If you file a joint return with your spouse, and your combined income is between $32,000 and $44,000, the IRS may tax up to fifty percent of your benefits. Above $44,000, up to eighty-five percent of your benefits may be taxes.
- Most married couples who file separate returns will be taxed on their benefits by the IRS.
Source: Social Secuirty Adminstration
Whether or not a senior or other Social Security beneficiary depends on their annual gross income. Combined income is calculated by adding up your annual gross income, nontaxable interest, and your social security benefits.
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How do you know if you need to pay taxes?
The Social Security Administration will send beneficiaries an SSA-1099 form each year which details the total amount they received in benefits. When looking at this figure and any other sources of income, a beneficiary will be able to determine if they owe the Internal Revanue Service money for that year.
The IRS has developed the Interactive Tax Assitant to help various groups understand if they are required to pay taxes. For those on social security, they will need your annual gross income, and the information provided on the SSA-1099.