Social Security Benefits & Tax Thresholds

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If you are one of the millions of Americans who receive Social Security benefits, you need to understand the federal taxation of those benefits. For many people, Social Security benefits are non-taxable. However, as your income from other sources increases, a growing percentage of your benefits become taxable.

Calculating Your Base Amount

  • The taxability of Social Security benefits is determined by calculating your base amount of income, and then comparing it to the base amounts set by the Internal Revenue Code. If your income is above the government's base amount, a percentage of your benefits will become taxable.

    To calculate your base amount, add one-half of your Social Security benefits to all of the other income that you received. such as wages, pensions, interest and other income. If you are married and file a joint return, you must include your spouse's income.

    Once you have your total base amount, you compare it to the base amounts allowed by the tax code.

Base Amounts Allowed

  • The base amounts allowed by the tax code differ by filing status. The base amounts are:

    $25,000 if you are single, head of household, or a qualifying widow (er).

    $25,000 if you are married filing separately and lived apart from your spouse for all of the tax year.

    $32,000 if you are married filing jointly.

    $-0- if married filing separately and lived with your spouse at any time during the tax year.

What Percentage of Your Benefits Are Taxable?

  • Generally speaking, once you have exceeded the government's base amounts of income, your Social Security benefits become taxable. As your income increases, the percentage of your benefits that are taxed increases.

    Calculating the percentage of taxable Social Security benefits is complicated. Both IRS Publication 17, Your Federal Tax Return, and IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits have detailed worksheets to help you calculate the amount of benefits taxed.

Estimated Taxes and Withholding

  • If your income is above the base amount, you can chose to have federal tax withheld from your Social Security benefits to compensate for the taxes that will be due. To accomplish this, you must complete IRS Form W-4V.

    If you do not choose to have income tax withheld, you may have to have additional withholding from other income or pay quarterly estimated taxes during the year.

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