Retirement is approaching and soon you'll be faced with the decision when is the right time to take your social security benefits. You then talk to a few others that are faced with the same decision and find out that your social security benefits could be taxable. Say what!? Yes, it's true.
Some people are quite surprised when they learn that their social security income can be taxed. Not knowing this in some instances people may have not factored that into their retirement planning. This can make a substantial difference. Often enough as well people may continue working not realizing they are able to collect social security benefits. Generally speaking, yet there are always exceptions to every rule, if your only income is from social security chances are your benefits will not be taxed and you may not need to file a tax return. If you do have other sources of income in addition to your social security then you may be required to pay taxes on your benefits. Certainly an area that requires looking at closer.
IRS Guidance on Taxation of Social Security Benefits
Fortunately, the IRS has provided some guidance so you can answer the question, are social security benefits taxable? Each January you should receive a Form SSA-1099 if you were on Social Security. This form will explain the benefits you received and you will need this to complete your taxes. The IRS has provided 7 factors that will help you determine whether your benefits are taxable or not. The IRS website has this list, but let’s review it here.
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- The taxation of your social security benefits will depend on your total income for the year as well as your marital status
- As mentioned previously if your only income were from your social security, chances are it won’t be taxable.
- If you have additional income you still may not be taxed. There is a base amount before you are taxed, if you fall under this amount chances are you will not be taxed.
- Form 1040 or Form 1040 A is a worksheet that will help you figure out your taxable amounts and your modified gross income.
- You can check quickly to see if some of your benefits may be taxable. Add one-half of the total Social Security benefits you received to all your other income including any tax exempt interest and any other income deductions. Once you have your total take this amount and compare it to the base amount. If you are over that base amount you may be taxed on that amount.
- There are certain base amounts depending on your income and your marital status of the previous year. See which category you belong to and use this in your calculations.
- Lastly if you have any questions at all or are uncertain about whether you should or should not file a return you can easily reach the IRS. This can be done through their website or call 1-800-TAX FORM.
• $32,000 for married couples filing jointly.
• $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year.
• $0 for married persons filing separately who lived together during the year.
Social Security and the IRS
There is no getting around the IRS. If you have to pay them then you have to pay them. Yet good advice is to be prepared and to have all the knowledge you need to determine this. There are options you have as well if you find you have to pay taxes. Talking to the IRS if you have questions, or discussing it with someone who has financial savvy in this area is always a wise idea as well. It is in your best interest to find out if social security benefits are taxable for you.