Are Your Social Security Benefits Taxable?
Since the day that you entered the workforce, you have put a portion of your paycheck into social security. It comes out virtually automatically and you do not even really know it’s missing. It’s a little savings account for retirement, a security blanket of sorts that assures you of receiving a small amount of income after you retire.
One thing that is rarely discussed about social security is whether you actually pay income taxes on your social security. It is very important to understand how this is determined so that you can plan appropriately for your financial future.
The biggest factor behind whether your social security benefits will be taxable is the amount of income you receive. The first thing to do is calculate what is called your provisional income, or your adjusted gross income (not counting social security) plus any tax-exempt interest and 50% of your benefits. Once you have your provisional income calculated, here are the general guidelines to help you through the filing process:
When are your benefits tax free?
You do not have to pay any income taxes on your social security benefits if your income is less than $25,000 (filing single, head of household) or $32,000 (filing jointly).
When do you have to pay taxes on your social security?
A maximum of half of your benefits can be taxed if your provisional income is between $25,000 and $34,000 if you are filing single or head of household, and between $32,000 and $44,000 if you are filing jointly. In addition, if your provisional income is higher than $34,000 (single) or higher than $44,000 (jointly), up to 85% of your social security income will be taxed.
Planning for Your Future
So, as with most things, the most important thing that you can do to anticipate these taxes are to plan ahead and strategize. There are ways to minimize the impact of these taxes on your social security income upon retirement but you have to be smart about it. Some common strategies include staggering your IRA withdrawals, considering the timing for selling stock. You can also see if it would be beneficial to have federal taxes withheld from your social security income so that you are not hit hard come tax time.
As you approach retirement, you may have a lot of questions about exactly how much you will clear after all of the dust settles. And will it be enough to live on? Well, one thing that you can get concrete answers about is how much (if any) your social security benefits will be taxed. If you have questions about this calculation, projecting your provisional income or have other tax questions as you approach retirement, consider getting some help.
A tax firm like Success Tax Relief can review your income, your plans for retirement and help determine how much you can plan to keep in your pocket after you retire. Contact us today to begin planning for your retirement and determining what taxes you’ll pay, if any, on your social security.