Approximately 61 million Americans receive social security benefits which may be taxable when single or married individuals earn income that exceeds a designated threshold. That means about 25% of families in the U.S. receive social security income.
Thankfully, the Social Security Administration (SSA) developed a simple formula so you know what to do when you receive social security benefits. Keep reading to find out “Is social security taxable?” and how to report the income.
When Are Social Security Benefits Taxable?
Currently, the SSA uses the following guidelines to determine how much social security income is taxable. The agency considers combined income as your adjusted gross income, plus nontaxable interest and 50% of your social security benefits.
- Single Filer – Limit: Combined income between $25,000 – $34,000. You may owe federal income tax on 50% of the benefits. If your combined income exceeds $34,000, it’s possible to owe tax on 85% of the benefits.
- Married Filers (Joint Return) – Limit: Combined income between $32,000 – $44,000. Tax may be owed on 50% of the benefits and 85% of the benefits when exceeding $44,000.
- Married Filers (Separate Return): The Social Security Administration estimates that by filing a separate return, you will owe taxes on social security benefits.
You must report these other types of income on your tax return:
- Earned Income: Self-employment net earnings.
- Unearned income: Earnings from investments, interest, pensions, annuities, capital gains, and other sources aren’t counted toward the earnings limit but they can be included as part of your adjustable gross income to figure whether you owe tax on 50% or 85% of your benefits.
The one thing you DON’T want to do is declare less income in order to pay less tax or increase your refund.
Here’s a simple example of how to figure taxable benefits:
|Earned Income exclusively from wages||Social Security Income||Social Security Taxable Benefits|
|Single Filer||$40,000||$21,000||85% of $21,000|
If you need further help to determine whether your benefits are taxable, use an IRS worksheet like this one or contact a tax professional. Make sure you use an updated worksheet for the current tax year to figure the social security taxable income.
Other Things to Keep in Mind About Social Security Taxable Income and Taxes
Remember the following tips when reporting your taxable income and paying any taxes due:
- Supplemental Security Income (SSI) and social security benefits your children receive do not count toward your taxable income.
- Even when you reach full retirement age (varies between 65 – 67 years of age based on your birth year), your benefits can be taxed if you continue to earn money and exceed social security earnings limits.
- Rather than pay taxes you owe on benefits when you file your tax return, you can set up quarterly tax payments with the IRS or arrange to have payments deducted from your social security deposit.
- To reduce the amount of federal tax you owe on social security taxable income, it’s important to take as many legitimate common tax reductions for your business as possible. Likewise, by knowing which deductions you can use, you maximize business profits.
- If you have a Roth IRA retirement account, you can make distributions and the income doesn’t affect your social security benefits. That’s because Roth IRAs aren’t taxable income since contributions are taxed when funding the Roth account. Even if you own a traditional IRA, it’s possible to convert that account to a Roth IRA to maximize social security benefits.
- If you need to supplement your income, try to limit your earnings to stay below the taxable thresholds.
- Take advantage of free tax help offered by the IRS Volunteer Income Tax Assistance program offered to those who earn less than $54,000 per year. They also provide help to disabled individuals, senior citizens, and those with limited English-speaking skills. Volunteers are IRS-certified and provide basic tax preparation services.
- As of January 2019, there are 13 states that tax social security income (image courtesy of RetirementLiving.com). Make sure to check with authorities in those states about their taxing requirements.
How to File Social Security Taxable Income on Your Tax Return
Each year when you receive social security income, the SSA issues form SSA-1099, a Social Security Benefit Statement that shows the net benefits you received. If you fail to receive the form, visit your local social security office or call 1-800-772-1213.
As you complete your tax return, you will enter the amount from your SSA statement on line 5a of the Form 1040 US individual tax return. You will also report any wages you earned shown on Form W-2, tax-exempt and taxable interest, qualified and ordinary dividends, taxable IRAs, pensions, and annuities as well as miscellaneous and business income. On line 5b, you will enter the amount of social security taxable benefits, if any.
After you take qualified deductions and credits and make adjustments from other schedules and fill in the amount of federal income tax withheld, you’ll determine if you owe tax or you’ll receive a refund.
Your social security taxable benefits will never be taxed at 100%. As a general rule, if your only income is from social security benefits, you won’t need to file a tax return.
Helpful Resources Available from Camino Financial
As you can see, the guidelines to figure the tax you owe on social security benefits isn’t hard to understand. The IRS and SSA provide a straightforward approach when you’re uncertain about how to report any social security taxable income you receive.
This post is one example of helpful articles we provide to help you make the best decisions to grow your business. We’re serious about enforcing our motto, “No Business Left Behind” and provide selected tools and resources to keep you informed.
Did you know that by filing proper and accurate tax returns you can improve your chances of being approved for a business loan? Lenders can verify your business’s revenue and other information to determine your creditworthiness and ability to repay a small business loan.
To keep learning about taxes, here’s a post with step-by-step instructions on how to file taxes for small businesses.