I understand that a portion of Social Security benefits may be taxable even when I retire. Can you tell me how to calculate this?
The requirement to pay federal income tax on your Social Security benefits will depend on your income and filing status. About 35% of Social Security recipients have total incomes high enough to trigger federal income tax on their benefits.
To figure out if your benefits will be taxable, add up all of your "provisional income." This includes wages, taxable and non-taxable interest, dividends, pensions and taxable retirement-plan distributions, self-employment and other taxable income, then add half of your annual Social Security benefits and subtract certain deductions used in calculating your adjusted gross income.
How to Calculate
To help you with the calculations, get a copy of IRS Publication 915 "Social Security and Equivalent Railroad Retirement Benefits," which provides detailed instructions and worksheets. You can download it at IRS.gov/pub/irs-pdf/p915.pdf or call the IRS at 800-829-3676 and ask them to mail you a free copy.
If you are single and your total income from all of the listed sources is:
Less than $25,000, your Social Security will not be subject to federal income tax.
Between $25,000 and $34,000, up to 50% of your Social Security benefits will be taxed.
More than $34,000, up to 85% of your benefits will be taxed.
If you are married and filing jointly and the total from all sources is:
Less than $32,000, your Social Security will not be taxed.
Between $32,000 and $44,000, up to 50% of your Social Security benefits will be taxed.
More than $44,000, up to 85% of your benefits will be taxed.
If you are married and file a separate return, you probably will pay taxes on your benefits.
To limit potential taxes on your benefits, you will need to be cautious when taking distributions from retirement accounts or other sources. In addition to triggering ordinary income tax, a distribution that significantly increases your gross income can bump the percentage of your Social Security benefits subject to taxation.
How to File
If you find that part of your Social Security benefits will be taxable, you will need to file using Form 1040 or Form 1040-SR. You also need to know that if you do owe taxes, you will need to make quarterly estimated tax payments to the IRS or you can choose to have it automatically withheld from your benefits.
To elect withholding, you will need to complete IRS Form W-4V, Voluntary Withholding Request (IRS.gov/pub/irs-pdf/fw4v.pdf), and file it with your local Social Security office. You can choose to have 7%, 10%, 12% or 22% of your total benefit payment withheld. If you subsequently decide you do not want the taxes withheld, you can file another W-4V to stop the withholding.
If you have additional questions on taxable Social Security benefits call the IRS help line at 800-829-1040.
In addition to the federal government, 13 states – Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia – tax Social Security benefits to some extent too. If you live in one of these states, check with your state tax agency for details. For links to state tax agencies see TaxAdmin.org/state-tax-agencies.
Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.