People often have questions about their Social Security benefits: What will my benefits be? When should I apply for benefits? Is tax deducted from Social Security income in retirement?
This is not surprising. Nearly all U. S. citizens pay into the program and expect to receive benefits in the future. For the tax year 2021, nine out of 10 of those age 65 and older were recipients of some portion of the one trillion dollars that the Social Security Administration (SSA) distributed per month.
Multiple variables, such as salary and other sources of income, determine the dollar value of the Social Security benefits that about 65 million retirees receive. So, it’s not possible to say the exact amount of money you will receive. But once you’ve worked with the SSA to estimate your benefits amount, there's a possibility that the agency will deduct some things from your benefits.
Read More: How Do Income Taxes Work?
SS Benefits at Full and Early Retirement
The dollar amount of your Social Security benefits depends in part on the full retirement age that the SSA has set for anyone born in your birth year. Another determinant is your actual age when you apply for those benefits. If, when you apply, you’ve yet to reach the full retirement age, the SSA also considers the number of months between the day you apply and your full retirement age.
If your full retirement age is 66, for example, and you apply for benefits at 66, you’ll receive your full, monthly Social Security benefits. If you take early retirement at age 62 or any time thereafter, but before your 66th birthday, you'll receive around 70 percent of your full benefits.
Federal Income Tax and SS Benefits
Federal income tax may reduce the Social Security benefits you receive. Whether you owe federal tax on your benefits depends on your combined income and the income thresholds that are set by the Internal Revenue Service (IRS).
Read More: Do You Pay Taxes on Social Security?
The Taxable Social Security Check Amount
The income threshold is the income level at which a person begins paying income taxes. If you file an individual tax return in 2021, and earn at least $25,000 per year or more, your Social Security benefits may be taxed. If you file a joint return, the income threshold is at least $32,000.
Your combined income equals the sum of your adjusted gross income and earned income, plus one half of your Social Security benefits. This total determines if the IRS taxes your benefits. If so, your combined income also determines the percentage of your benefits that are taxed. The SSA provides examples to consider that include:
- If you have single filing status and your combined income is between $25,000 and $34,000, 50 percent of your Social Security benefits may be taxed.
- If you have single filing status and your combined income is greater than $34,000, the IRS may tax as much 85 percent of your benefits.
- If you have married filing jointly filing status and your combined income falls between $32,000 and $44,000, 50 percent of your Social Security benefits is subject to tax.
- If you have married filing jointly filing status and your combined income is greater than $44,000, the IRS may tax 85 percent of your benefits.
Read More: How Do Income Taxes Work?
State Income Tax and SS Benefits
Not only federal income tax, but also state income tax may reduce your Social Security benefits. While 12 states tax Social Security benefits, their methods vary. A state may tax your benefits in its entirety or tax only a portion, depending on your age or income level.
Another 26 states either allow you to exclude Social Security benefits from your taxable income or they don’t impose a state tax. An additional 12 states tax your benefits but exempt the portion that’s taxed at the federal level. Visit TaxAdmin.Org and search for your state to read about your state’s tax code.
Medicare Premiums and SS Checks
If you enroll in Medicare Part B, you’ll pay a monthly premium that’s based on your income. For example, if you're single and your income is $88,000 or less, or if you file a joint return and your income is $176,000 or less, your Part B monthly premium is $148.50 in 2021.
Overpayment of Social Security
If the SSA overpays your Social Security benefits, the agency will notify you of possible repayment options as well as your appeal and waiver rights. About 30 days later, the agency will begin to withhold the full amount of your benefits each month until the overpayment amount is recovered. You can request that a lesser amount be withheld.
Garnishments and SS Benefits
There are several circumstances in which the SSA can garnish your Social Security benefits, including:
- The enforcement of child, spousal or family support obligations.
- Victim restitution that's ordered by the court.
- The collection of unpaid federal taxes.
- Withholding to satisfy a current federal income tax liability.
- A non-tax debt that's owed to another federal agency according to the Debt Collection Act of 1996.
Never assume that your full social security check amount will remain that way. Under some circumstances, you may be subject to garnishment or taxation. So, it is best to be prepared.
- SSA.Gov: Fact Sheet SOCIAL SECURITY
- SSA.Gov: Starting Your Retirement Benefits Early
- SSA.Gov: Retirement Benefits
- SSA.Gov: Income Taxes And Your Social Security Benefit
- TaxFoundation.Org: State Individual Income Tax Rates and Brackets for 2021
- AARP.Org: Which states tax Social Security benefits?
- TaxAdmin.Org: STATE INDIVIDUAL INCOME TAXES
- Medicare.Gov: Part B costs
- SSA.Gov: Overpayments
- SSA.Gov: Definition: Deductions
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.