Understanding Taxes on Your Social Security Benefits
Written by Kasey Ng   


If you don’t have any income sources other than Social Security, then you probably don’t need to pay taxes, and you may not even need to file tax return. However, if you do have other income sources such as wages if you are still working, interest from your saving account, or rent revenue if you rent out your properties, your social security benefits may become taxable.


How do the taxes on social security benefits are calculated

The department of social security will look at your combined income to decide how your social security benefit should be taxed. The combined income is calculated as follow:

   Your adjusted gross income (total income – taxes on the income)
   Non-taxable interest
+ ½ of your social security benefits
   Combined income

Tip: Because how much you earn will affect whether you will be taxed on your social security benefit, it is important to do the calculation before you choose to take a side job.

If the amount of your combined income is above certain thresholds, your social security will become taxable. The thresholds are different depends on whether you are individual filer or married filer.


Taxes on social security benefits for married filers
  • If you are married and your combined income is below $32,000, you do not need to pay taxes for your social security benefits.
     
  • If your combined income is between $32,000 and $44,000, 50% of your social security benefits may be taxable.
     
  • If your combined income exceeds $44,000, 85% of your benefits will be taxable.

Taxes on social security benefits for individual filers
  • If you are married and your combined income is below $25,000, you do not need to pay taxes for your social security benefits.
     
  • If your combined income is between $25,000 and $34,000, 50% of your social security benefits may be taxable.
     
  • If your combined income exceeds $34,000, 85% of your benefits will be taxable.
Note: If you are married, and you live in the same household at any time during the year, your social security will be taxable if you file your return individually, regardless of the amount of your income.


Tips to lower the amount of taxes you need to pay for your social security benefit
  1. Pay off as much debts as possible. Your credit card payment, mortgage payment and others will make your need of income much higher. Therefore, paying off the debts will allow you to live under a low income bracket. For more information on debts, please read A Comprehensive Guide to Debt Management.
     
  2. Roll as much investment as possible into tax-deferred retirement funds because those incomes that you put into the funds don’t count as part of the combined incomes.  Read Different Types of Retirement Funds to understand the various features.


 
Last Updated on Wednesday, 22 December 2010 06:11