Social Security benefits are meant to be a safety net as you retire. For many people, their monthly benefits amount is not just a nice supplement, but an absolute necessity. And yet, some beneficiaries actually see their monthly amount lessen due to taxes. These taxes were put into place to — ironically — help social security and medicaid stay financially solvent, but that doesn’t really mean much to the average retiree when he or she finds themselves with less money in their pocket to pay the bills or buy groceries.
Because of this, you might be wondering if you are, or will have to pay taxes on your social security benefits.
Will I have to Pay Taxes?
The good news is that, for most people, the answer to this question is no. In fact, almost 70% of Americans never have to pay taxes on their social security benefits. This is because whether or not you are taxed is based on your provisional income. “Provisional income” is basically your annual income before factoring in your SS benefits. So, money from things like a supplemental job, your investments, etc, are totalled up. If you bring in less than a certain amount per year (and for 2017, that amount is $25,000 for a single return, or $32,000 if filing jointly) then you will not have to pay any taxes at all!
If, however, you do make more than that, you will find yourself owing Uncle Sam at least a little bit. For those that make between $25,000 and $34,000 for a single return, and between $32,000 and $44,000 on a joint return, up to 50% of the money from Social Security will be considered taxable income. For those of you bringing in even more than $34,000 (single) or $44,000 (joint), that number skyrockets to 85% of your monthly benefits being considered as taxable.
Of course, those numbers can change as well depending on your home state and other factors. The good news is that this is a common enough thing that your accountant, or even your tax software, should be able to determine this amount easily, to make sure you don’t end up paying the IRS the incorrect amount.
If you have more questions about this or other items related to Social Security, please don’t hesitate to call us today!