Why Is a Social Security Check Taxed?

Those who have recently qualified to begin receiving Social Security benefits may not be aware that the payments may be taxed. Learning the rules is necessary in order to prepare for a possible tax liability.

Misconceptions

Some people wrongly believe that Social Security benefits are tax free, as this is not always the case. Social Security recipients receive a 1099-SSA, an informational form that reports the benefit summary for the appropriate tax year, when preparing their income taxes. Those who receive supplemental security will not receive a 1099-SSA, as this is not subject to income tax.

Federal Taxation

According to the 2008 IRS rules, single Social Security recipients who earn in excess of $25,000, and married couples who earn in excess of $32,000 must pay taxes on their Social Security benefits. Typically, up to 50 percent of your benefits can be taxable. It can be 85 percent if half of your Social Security benefits and other earnings totaled exceeds $34,000 for single individuals or $44,000 for married couples. Married individuals who file separately and live with their spouse during any part of the year also may be taxed on 85 percent of their Social Security benefits.

State Taxation

Many states and localities do not tax Social Security benefits, so check with the appropriate taxing authority. This information is available on th website of the state's taxing authority, or you can call the number provided on each website. Have your previous year's tax return and your social security benefit information available to provide any requested information.

Prevention/Solution

If you think that you may have to pay taxes on some of your Social Security benefits, have the Social Security Administration withhold federal taxes from your benefit payments. Visit their website to complete the proper form to have it initiated.

Warning

If your state taxes Social Security benefits, be aware that you cannot have state taxes withheld from benefits, and you must prepare for this liability in another manner. You can pay estimates to your state of residence. Estimated payments are prepared and sent in quarterly. Check with your tax professional to determine the right amounts to have withheld or to pay in state estimates. The estimate forms can be prepared by your tax professional or downloadable forms are available from the state's tax website.

References

• Social Security Administration
• IRS Publication 915

Resources

• Social Security Administration