Is Social Security Taxable?

Q. I retired last year, and started receiving Social Security benefits. I am getting ready to do my taxes, and was wondering if I have to pay federal or state taxes on my Social Security income.

My understanding was that Social Security is considered a tax-free benefit, but I heard that is not always the case. Can you clarify if my Social Security benefits are taxable, and if so, how the amount is calculated? Thanks for your help!

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A. Originally, Social Security benefits weren’t subject to taxes. But, as part of a “Save Social Security” plan, Congress decided to tax up to 50% of benefits. Later, lawmakers decided to tax up to 85%, with the extra revenue going towards Medicare.

Not everyone pays taxes on their Social Security benefits and everyone gets 15% of their benefits tax-free. But if, for example, you have retirement income from other sources (for example a pension, IRA distributions, or a part-time job), your income will probably be over the limits set by the Social Security Administration for tax-free benefits. That means you could pay taxes on up to 85% of your Social Security income.

According to the IRS website, to find out whether any of your benefits may be taxable, compare the base amount for your filing status with the total of:

  • One-half of your benefits; plus
  • All of your other income, including tax-exempt interest.

There are resources to help you figure this out, that I will provide at the end of this article. As a rule of thumb, the base amount for your filing status is:

  • $25,000 if you’re single, head of household, or qualifying widow(er),
  • $25,000 if you’re married filing separately and lived apart from your spouse for the entire year,
  • $32,000 if you’re married filing jointly,
  • $0 if you’re married filing separately and lived with your spouse at any time during the tax year.

If you’re married and file a joint return, you and your spouse must combine your incomes and Social Security benefits when figuring the taxable portion of your benefits. Even if your spouse didn’t receive any benefits, you must add your spouse’s income to yours when figuring on a joint return if any of your benefits are taxable.

The IRS offers the following tips and resources regarding paying taxes on benefits:

  • Form SSA-1099. Each January you will receive a Social Security Benefit Statement (Form SSA-1099) showing the amount of benefits you received in the previous year. You can use this Benefit Statement when you complete your federal income tax return to find out if your benefits are subject to tax.
  • Only Social Security. If Social Security was a taxpayer’s only income in 2017, their benefits may not be taxable. They also may not need to file a federal income tax return. If they get income from other sources, they may have to pay taxes on some of their benefits.
  • Free File. Taxpayers may use IRS Free File to prepare and e-file their tax returns for free.
  • Interactive Tax Tools. Taxpayers can get answers to their tax questions with this helpful tool, Are My Social Security or Railroad Retirement Tier I Benefits Taxable, to see if any of their benefits are taxable. They can also visit IRS.gov and use the Interactive Tax Assistant tool.

If you do have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from your benefits.

State Taxes on Social Security Benefits

The majority of states exempt at least some Social Security income from their taxes, but there’s a range. Alaska doesn’t tax income at all, while a handful of states tax Social Security benefits to the same extent that they’re taxed at the federal level. The 13 states that tax Social Security are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia. I hope this is helpful!

Speaking of taxes, if you did your estate planning at the Farr Law Firm in 2017, we suggest that 20% of the total fees that you paid to our firm can appropriately be considered deductible tax advice. If you or a friend or loved one hasn’t had the chance to meet with an Estate Planning Attorney this year or if you or a loved one need nursing home care now or in the future, please make an appointment for a no-cost initial consultation at:

Virginia Elder Law Attorney: 703-691-1888
Maryland Elder Law Attorney: 301-519-8041
DC Elder Law Attorney: 202-587-2797

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