Social Security retirement benefits provide an annuity income for Americans who have worked and paid into Social Security for at least 10 years and who have reached the age of 62. You are encouraged to wait to draw Social Security at full retirement age. As of 2020, full retirement is age 66, or age 67 for those born after 1960. Most seniors who draw Social Security prior to full retirement age do not anticipate that there may be federal income taxes due on the money they receive each year, but taxes are owed if there is sufficient individual or joint income. About one-third of people who receive Social Security have to pay income tax on the benefits, according to the Social Security Administration.
Calculate Your Combined Income
Calculate your combined income. This figure is not just the adjusted gross income figure, but also adds nontaxable interest and half of Social Security benefits received. Use the SSA-1099 or 1042S Social Security Benefit Statement provided to Social Security recipients each year to calculate this figure.
Determine Your Taxable Income (Individual)
Determine the percentage of Social Security income that is taxable if you file federal income taxes as an individual. If your combined income is between $25,000 and $34,000, you will pay federal income taxes on up to 50 percent of the Social Security benefits received that year. Income over $34,000 will tax up to 85 percent of the benefits received.
Determine Your Taxable Income (Joint)
Determine the percentage of Social Security income that is taxable if you file a joint return with your spouse. The combined income for both rises to between $32,000 and $44,000 for taxation on up to 50 percent of Social Security benefits received. The combined income threshold above $44,000 may trigger taxation of up to 85 percent of benefits. Filing separately while married is not helpful, according to the Social Security website.
Consider Tax Withholding
Consider having federal income taxes withheld from your Social Security check. This is not required but may avoid quarterly estimated tax payments. To help with tax planning, the Internal Revenue Service has Publication 554, “Tax Guide for Seniors.” Publication 915, “Social Security and Equivalent Railroad Retirement Benefits,” is also available by calling (800) 829-3676. There is a form available online to have taxes withheld from your Social Security check, and you choose the percentage you wish to have withheld.
Working While Receiving Benefits
Prepare to have Social Security benefits withheld if you work while receiving retirement benefits from Social Security before the full retirement age. In addition to paying federal income taxes on Social Security benefits, if you collect benefits before full retirement age and continue to work, the Social Security Administration takes a dollar of your benefit for every two you earn above the threshold. The threshold changes, but as of 2020, is currently capped at $18,240. If you work in a job covered by Social Security, the government website indicates that you continue to pay Social Security and Medicare, either as an employee or self-employed.
- Social Security Online: You Can Work and Get Social Security at the Same Time
- Social Security Online: Benefits Planner: Frequently Asked Retirement Questions
- Social Security Online: Withholding Income Tax from Your Social Security Benefits
- SSA.gov: Retirement Benefits 2020
- IRS: About Publication 554, Tax Guide for Seniors
- IRS: Publication 915, Social Security and Equivalent Railroad Retirement Benefits
Linda Richard has been a legal writer and antiques appraiser for more than 25 years, and has been writing online for more than 12 years. Richard holds a bachelor's degree in English and business administration. She has operated a small business for more than 20 years. She and her husband enjoy remodeling old houses and are currently working on a 1970s home.