Does Social Security count as income?
Here’s everything you need to know about Social Security’s fine print when it comes to taking income.
Social Security is a vital source of financial support for millions of retired, disabled and surviving family members up and down the United States that would be otherwise forgotten by policy that is otherwise failing to help them.
For many, Social Security is their primary source of income, and that means it must be taxed.
Receiving Social Security retirement benefits does not prevent someone from working. However, beneficiaries who have not yet reached their full retirement age may see their benefits temporarily reduced if their earnings exceed the annual earnings limit set by the Social Security Administration (SSA). Once a person reaches full retirement age, there is no earnings limit and benefits are no longer reduced because of employment income.
Do I have to pay taxes if I receive Social Security?
During tax season, Social Security recipients must determine whether a portion of their benefits is subject to federal income tax. To do this, the Internal Revenue Service (IRS) uses a measure known as “combined income”. Here’s how it works:
Combined income is calculated by adding together three things:
- Adjusted gross income (AGI), including wages, pensions, retirement account withdrawals and investment income.
- Any non-taxable interest income.
- One-half of annual Social Security benefits.
It’s worth nothing that those with combined income below $25,000 ($32,000 for married couples filing jointly) typically do not pay federal tax on their Social Security benefits. However, those above these thresholds may have up to 50% of their benefits taxed, while those with combined income exceeding $34,000 ($44,000 for married couples) may have up to 85% of their benefits included in taxable income.
It is also important to keep in mind that these percentages do not represent the tax rate: they represent the maximum share of Social Security benefits that can be subject to income tax.
How do I know if my benefits are taxable?
Every January, the SSA sends beneficiaries Form SSA-1099, which shows the total benefits received during the previous year. This information is used to determine whether any portion of Social Security benefits is subject to federal income tax. Beneficiaries who expect to owe taxes can either request withholding from their monthly payments using Form W-4V or make quarterly estimated tax payments.
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