Is social security taxable (2018 update) – smartasset gas up the jet

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According to the IRS, the quick way to see if you will pay taxes on your Social Social Security income is to take one half of your Social Security benefits and add that amount to all your other income, including tax-exempt interest. This number is known as your combined income (combined income = adjusted gross income + nontaxable interest + half of your Social Security benefits).

The limit is $25,000 if you are a single filer, head of household or qualifying widow or widower with a dependent child. The same applies if you are married filing separately and you lived apart from your spouse for the entire tax year. The limit for joint filers is $32,000. If you are married filing jointly and you lived with your spouse for any part of the tax year, all your Social Security income is taxable. Calculating Your Social Security Income Tax

For the 2017 tax year, single filers with a combined income of $25,000 to $34,000 must pay income taxes on up to 50% of their Social Security benefits. If your combined income was more than $34,000, you will pay taxes on up to 85% of your Social Security benefits.

For married couples filing jointly, you will pay taxes on up to 50% of your Social Security income if you have a combined income of $32,000 to 44,000. If you have a combined income of more than $44,000, you can expect to pay taxes on up to 85% of your Social Security benefits.

If 50% of your benefits are subject to tax, the exact amount you include in your taxable income (meaning on your Form 1040 or Form 1040A) will be the lesser of either a) half of your annual Social Security benefits or b) half of the difference between your combined income and the IRS base amount.

Let’s look at an example. Say you’re a single filer who receives a monthly benefit of $1,410 (the average benefit in December 2017). Your total annual benefits would be $16,920. Half of that would be $8,460. Then let’s say you have a combined income of $30,000. The difference between your combined income and your base amount (which is $25,000 for single filers) is $5,000. So the taxable amount that you would enter on your federal income tax form is $5,000, because it is lower than half of your annual Social Security benefit.

The example above is for someone who is paying taxes on 50% of his or her Social Security benefits. Things get more complicated if you’re paying taxes on 85% of your benefits. However, the IRS helps tax payers by offering software and a worksheet to calculate Social Security tax liability. How to File Social Security Income on Your Federal Taxes

Note that you cannot file Form 1040EZ if you have Social Security income. You will need to file either Form 1040 or Form 1040A. Both forms have a line where you will need to enter both your total Social Security benefits from the year and your taxable benefits. You can find the total amount of your benefits in box 3 of your Form SSA-1099.

If you are filing Form 1040, you will write the total amount of your Social Security benefits on line 20a and the taxable amount on line 20b. If you are filing Form 1040A, write the total amount of your benefits on line 14a and the taxable amount on line 14b. Simplifying your Social Security Taxes

To withhold taxes from your Social Security benefits, you will need to fill out Form W-4V (Voluntary Withholding Request). The form only has only seven lines. You will need to enter your personal information and then choose how much to withhold from your benefits. The only withholding options are 7%, 10%, 12% or 22% of your monthly benefit. After you fill out the form, mail it to your closest Social Security Administration (SSA) office or drop it off in person.

If you prefer to pay more exact withholding payments, you can choose to file estimated tax payments instead of having the SSA withhold taxes. Estimated payments are tax payments that you make each quarter on income that an employer is not required to withhold tax from. So if you ever earned income from self-employment, you may already be familiar with estimated payments.

In general, it’s easier for retirees to have the SSA withhold taxes. Estimated taxes are a bit more complicated and will simply require you to do more work throughout the year. However, you should make the decision based on your personal situation. At any time you can also switch strategies by asking the the SSA to stop withholding taxes. The Impact of Roth IRAs

If you’re concerned about your income tax burden in retirement, consider saving in a Roth IRA. With a Roth IRA, you save after-tax dollars. Because you pay taxes on the money before contributing it to your Roth IRA, you will not pay any taxes when you withdraw your contributions. You also do not have to withdraw the funds on any specific schedule after you retire. This differs from traditional IRAs and 401(k) plans, which require you to begin withdrawing money once you reach 70.5 years old.

So, when you calculate your combined income for Social Security tax purposes, your withdrawals from a Roth IRA won’t count as part of that income. That could make a Roth IRA a great way to increase your retirement income without increasing your taxes in retirement. State Taxes on Social Security Benefits

The remaining 13 states collect taxes on at least some Social Security income. Four of those states follow the same taxation rules as the federal government. So if you live in one of those four states (Minnesota, North Dakota, Vermont or West Virginia) then you will pay the state’s regular income tax rates on all of your taxable benefits (i.e. up to 85% of your benefits).

Alabama, Alaska, Arizona, Arkansas, California, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin, Wyoming

We all want to pay as few taxes as possible. That’s especially true in retirement, when most of us have a set amount of savings. But consider that if you have enough retirement income that you’re paying taxes on Social Security benefits, you’re probably in decent shape financially. It means you have income from other sources and you’re not entirely dependent on Social Security to meet living expenses. Tips for Saving on Taxes in Retirement

• You can also save on your taxes in retirement by simply having a plan. Do you know the best age to start receiving Social Security benefits? Are you trying to spread your retirement income across different kinds of retirement accounts? Help yourself plan for retirement by talking to a financial advisor and creating a reasonable plan. It may seem daunting to wade through the options, but a matching tool like SmartAsset’s SmartAdvisor can help you find a person to work with to meet your needs. First you answer a series of questions about your situation and your goals. Then the program narrows down thousands of advisors to three fiduciaries who meet your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while doing much of the hard work for you.