How Much Taxes Are Withheld From Social Security Benefits?
The key to designing a successful tax strategy is to successfully match up the amount of tax you're responsible for with the amount you're having withheld. This can become more challenging once you transition from wage earner to Social Security recipient, because you're usually not aware at the outset how much federal tax will be deducted from your monthly benefit payments. Fortunately, the IRS does allow you to select a withholding amount that best fits your combined earnings.
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Social Security Tax Rate
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The rate of tax you pay while on Social Security depends on the amount of income you earn in addition to the disability benefit. If Social Security disability is your only source of income, your income is usually not subject to income tax. However, if you earn any additional income such as wages, capital gains interest or annuity income, your benefits may be subject to tax. For instance, individual filers who have a combined income of between $25,000 and $34,000 may have up to 50 percent tax of their Social Security taxed. Individual filers who earn more than $34,000 may have up to 85 percent of their benefits taxed. Joint filers who earn between $32,000 and $44,000 may pay tax on up to 50 percent of their benefits, while those who earn more than $44,000 may have up to 85 percent of their benefits taxed.
Voluntary Federal Withholding
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No federal tax is automatically withheld from your Social Security benefits. To request that tax be withheld, complete form W-4V and mail it to your local Social Security office. You can request that tax be withheld at a rate of 7 percent, 10 percent, 15 percent or 25 percent. You cannot, however, request that a specific dollar amount of tax be withheld from your benefit amount as such requests are not accepted. If at any time your earning situation changes and you desire to increase, decrease or stop having federal tax withheld from your Social Security benefits, just complete a new form W-4V and submit it.
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Tools
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On the IRS website you'll find a withholding calculator. Use this tool to estimate your income and withholding for the tax year. The tool is a good gauge for determining whether you're having enough federal tax withheld.
Warning
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If you do not have federal tax withheld from your Social Security and that causes you to owe tax at the end of the year, you must pay the tax or make arrangements to pay as soon as possible. If you fail to address your unpaid tax, the IRS can levy up to 15 percent of your monthly Social Security benefits until the tax is paid in full.
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