Can Government Taxes Be Taken Out of Social Security?

Social Security allows individuals to collect retirement benefits and continue to work, but the Internal Revenue Service taxes Social Security benefits if you have sufficient additional income. Also, Social Security imposes a penalty on early retirees who earn in excess of $14,160 annually. Social Security collects the penalty payment by withholding your monthly Social Security check. The IRS recognizes two ways to pay federal income taxes on your Social Security -- withholding and estimated tax payments.

Federal Income Taxes

The IRS uses combined income to calculate whether you owe taxes on Social Security benefits. Combined income totals your nontaxable interest, half of your annual Social Security payments and your adjusted gross income. If the total exceeds $25,000 and you file a federal income tax return as a single individual, you owe taxes on 50 percent of your Social Security income. The figure is $32,000 if you file jointly with your spouse. If your combined income totals more than $34,000 as a single filer or $44,000 as a joint filer, you pay federal income taxes on 85 percent of your annual Social Security income. These figures may fluctuate over the years.

Withholding

Use Form W-4V for voluntary withholding of federal income taxes from your Social Security payment. The Social Security Administration cannot withhold state or local income taxes from your Social Security monthly payment but can withhold federal income taxes if you have this form on file. Complete the form with the percentage of taxes you want withheld. Options are 7 percent, 10 percent, 15 percent and 25 percent. Stop by the nearest Social Security office to file the form. Your check should reflect the withheld amount within 60 days.

Estimated Tax Payments

The IRS provides Form 1040-ES for filing quarterly estimated taxes. If you anticipate your tax liability will exceed $1,000 for the calendar year after subtracting withholding and credits, you may pay taxes quarterly. Calculate your estimated taxes using the worksheets provided with Form 1040-ES. Payments are due the first working day after April 15, June 15, September 15 and January 15.

Other Ways to Pay

If you work and receive Social Security, you may choose to increase your withholding with a change in Form W-4 filed with your employer. Review the worksheet with Form W-4 to see what's best for you. Reducing your dependents or adding an additional amount for withholding increases the withheld amount. The increase may be sufficient to cover taxes owed on your Social Security income or provide a refund that covers your state and local income taxes.

References

• IRS.gov: Form W-4V
• IRS.gov: Form W-4 -- Employee's Withholding Allowance Certificate
• Social Security Administration: Withholding Federal Taxes from My Social Security Check
• Social Security Administration: Paying Income Tax on Social Security Benefits
• IRS.gov: Form 1040-ES
• IRS.gov: Publication 915 -- Social Security and Equivalent Railroad Retirement Benefits