Simply put, in many cases, you’re going to have to pay some sort of tax on your Social Security benefits. The Social Security Administration has detailed information about this and it all starts with this general baseline:
If you file as an individual and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If you make above $34,000, that number can go up to as high as 85%.
If you file jointly and you and your spouse have a combined income between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits. Above that $44,000 mark, the number can again rise to as high as 85%.
How Social Security Taxes Work
Each January, the SSA will send you your SSA-1099 form, which details your total benefits from the prior tax year. This will clearly show whether you owe tax or not. You can also get this form online (once it’s issued) through your “My Social Security” Account.
These taxes can be paid quarterly or automatically withheld from your monthly benefit payout.
How Social Security Income is Calculated
Social Security considers your adjusted gross income (AGI), which includes a variety of income sources, including your benefits. Tax-exempt interest is added and the sum is your total taxable amount. If you don’t meet the income threshold, you won’t be taxed. Oftentimes, those who rely solely on Social Security for income will not meet the threshold and do not have to pay taxes.
Are Spousal, Disability, Survivor, and SSI Benefits Taxable?
Investopedia outlines this in detail, but in short, most of these are taxed in the same way, except for Supplemental Security Income (SSI), which is needs-based and specifically non-taxable.
Social Security is a complex program, especially when it comes to taxes. If you’ve been initially denied for benefits, you may have questions about how it could affect your bottom line if you’re approved. A trusted Social Security claims attorney can answer some of these questions and provide resources to learn more. Call Schott Law today at (509) 328-5789 to schedule a free consultation.