How to Pay Income Tax on Social Security
As more boomers reach retirement age--or early retirement age, thanks to economic conditions--more questions pop up concerning one of what Ben Franklin called life's two certainties: Taxes (the other is "Death"). Some retirees eke out a living on their Social Security payments while others supplement the monthly checks by earning income. But, since retirement benefits come from the federal government, does Uncle Sam want some of it back by taxing those benefits? It depends.
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Things You'll Need
- Clean sheet of paper
- Pen or pencil
- Social Security Benefit Statement (Form SSA-1099) (or Railroad Retirement Board Form RRB-1099 and Form RRB-1042S)
- Form 1040A
Instructions
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What's Taxed, What's Not
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1
If Social Security benefits are your only source of income, you probably don't need to file a federal income tax return (benefits alone aren't taxable). However, you'll need to move on to the next steps if you also work (full-time or part-time) or have other sources of income, because you may need to file a federal tax return.
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2
Add up the other income you receive, such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return. If you're married, don't forget your spouse's income--even if your spouse doesn't receive any benefits. Remember: it's "joint" as far as the IRS is concerned.
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3
Add one-half of the total Social Security benefits you received to your Step 2 answer; the total will be your "combined income."
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4
Determine what the IRS considers to be "base amount" for your filing status Thre are three primary categories: $32,000 for married couples filing jointly; $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year; $0 for married persons filing separately who lived together during the year.
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5
Compare Step 3 and Step 4. If the total in Step 3 is lower than your base amount in Step 4, you've dodged the tax bullet. If your answer in Step 3 is higher than your base amount in Step 4, some of your benefits may be taxable.
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6
If you've reached this step, then you'll need to do some more math by completing the worksheet found in your Form 1040 or 1040A instruction book or in your tax software package. If you can't wait until the forms are available, get a copy of IRS Publication 915, "Social Security and Equivalent Railroad Retirement Benefits," on the IRS Web site at IRS.gov or by calling (800) 829-3676.
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Tips & Warnings
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.
When making this comparison, do not reduce your other income by any exclusions for interest from qualified U.S. savings bonds, employer-provided adoption benefits, foreign earned income or foreign housing or income earned by residents of American Samoa or Puerto Rico.
