Due to the tax cuts brought about by the Tax Cuts and Jobs Act (TCJA) of 2017, significant changes were made to the United States tax code that affect individuals and businesses as well as tax-exempt organizations and government entities. Some of these changes affect aspects of an individual tax return, such as withholdings.
The extent of these effects depends on many factors, such as your income level, filing status and standard deduction. In turn, your income level affects the tax that should be deducted from your Social Security benefits checks. The following information will help you decide if the correct tax is being withheld and, if not, what to do about it.
A withholding tax is the amount of money that an employer or agency, such as the Social Security Administration, deducts from your benefits check and forwards to the Internal Revenue Service (IRS). On receipt, the government credits your account for the annual income tax due. If too much money is withheld, you receive a tax refund; if too little cash is withheld, you must pay an additional tax bill.
SSA Income Tax Withholding
In that your Social Security check is a form of income, the Social Security Administration (SSA) can withhold income tax from your benefits check in payment of your tax liability. By requesting that the tax be withheld, you avoid the need to make quarterly estimated payments for the taxes that are due on your benefits or other taxable income.
IRS Tax Withholding Estimator
The Tax Cuts and Jobs Act (TCJA) revised tax rates and brackets, increased the standard deduction, eliminated personal exemptions and placed limitations on or discontinued certain deductions. So, you may need to increase or decrease the tax you pay during the year.
The IRS encourages you to request that the correct amount of income taxes be deducted from your Social Security check, so you avoid a year-end surprise or, worse, a tax penalty. The IRS has made available a Tax Withholding Estimator so you can double-check the amount that's being withheld now or arrange for the correct amount to be withheld in the future.
When you use the estimator, treat your benefit payments as wage income. Just enter the gross amount of each month's benefit payment, the frequency of the payment – monthly, quarterly or on another basis – and the total amount of tax that's already been withheld this year. Pay particular attention to tax-deferred retirement accounts, annuities and pensions, in addition to your Social Security benefits.
By comparing the amount that's been withheld per payment with the amount that should have been withheld, you'll know if you under-withheld. If so, you should adjust your withholding immediately or you'll owe additional cash and perhaps a penalty at tax time.
If you prefer, rather than using the online estimator, you can use the Form W-4P Withholding Certificate for Pension or Annuity Payments worksheet.
In general, you must pay at least 90 percent of the annual tax bill during the year or, if you make quarterly payments, by the following January. Otherwise, you may be assessed a penalty.
Using the W4-V Form
To request withholding from your Social Security benefits, file a Form W4-V with the Social Security Administration. As of the end of 2020, the current form is the 2018 version.
Tax Penalty Waiver
If your calculations indicate that you'll owe a penalty, the IRS may waive it under certain circumstances:
- You were unable to make the payments due to a casualty event, disaster or another circumstance.
- You retired having reached the age of 62 or became disabled during the tax year you should have made the estimated payments.
Use the IRS Form 2210 to request a waiver.
- Social Security Administration: Withholding Income Tax From Your Social Security Benefits
- Kiplinger: Withholding Taxes From Social Security
- Internal Revenue Service: Estimated Taxes
- Internal Revenue Service: Tax Reform
- Internal Revenue Service: How to Get It Right
- Internal Revenue Service: 2021 Form W-4P
- Internal Revenue Service: Topic No. 306 Penalty for Underpayment of Estimated Taxes for
- Internal Revenue Service: About Form W-4V Voluntary Withholding Request
- Internal Revenue Service: Form W-4V (Rev February 2020_
- Internal Revenue Service: Penalty Relief
- Internal Revenue Service: About Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts
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- IRS. "Questions and Answers for the Additional Medicare Tax." Accessed Oct. 16, 2020.
- You can use Form W-4V to request that the administration cease tax withholding from your benefit by checking the box on Line 7 of the form.
- Increasing your withholding decreases the amount of your monthly benefit.
Billie Nordmeyer is an IT consultant of 25 years standing. As a senior technical consultant for SAP America and Deloitte Touche DRT Systems, a business analyst, senior staff, and independent consultant, Billie has worked across the retail, oil and gas, pharmaceutical, aeronautics and banking industries. Billie holds a BSBA accounting, MBA finance, MA international management as well as the Business Analyst and Software Project Management certificates from the Cockrell School of Engineering at the University of Texas at Austin.