Taxable Benefits of Social Security Withdrawal
Social Security is payment made to someone for retirement, early retirement or disability. You might pay no taxes on your social security or you could pay on part of the benefit. The amount that the IRS charges taxes on depends on your income and your marital status. There is a quick calculation to find if you owe taxes and a rather lengthy one to find how much you owe.
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See If You Owe
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You may owe taxes if your combined income is over the base income of $25,000 for single individuals, qualifying widows, heads of household or married filing separately, if you lived apart from your spouse the entire year. If you're married filing jointly and have combined income of over the married filing jointly base income of $32,000, or if you're married filing separately but lived with your spouse any time during the tax year, you have to pay tax on 85 percent of your benefits, regardless of your income.
Calculate Your Income
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In order to find the taxable amount, you need to know how to find the income that the federal government counts when considering taxation on Social Security. First, it counts 1/2 the income shown in box 5 of your SSA-1099. Add to that amount any income from interest, employment, non-taxable income and exclusions from income such as savings-bond interest. If the total is higher than the base amount, you need to use IRS publication 915 (found in the resource area) to calculate how much you report on your taxes. The amount may be as high as 85 percent of your social security.
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85 Percent Taxable
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The rule of thumb is that any income between $25,000 to $34,000 for singles or between $32,000 to $44,000 for married filing jointly is 50-percent taxable. You simply write the total amount in box 20 on your taxes and put the taxable amount in box 20b. Amounts in excess when your combined income exceeds $34,000 for singles or $44,000 for married filing jointly, are normally 85 percent taxable.
Non-Resident Aliens
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If you're not a citizen or resident of the US, you pay taxes on 85 percent of your Social Security benefit and pay a 30 percent tax rate unless they're subject to a lower rate by treaty. The SSA-1042 S shows the amount of benefit, withholding and tax rate. Residents of Canada, Egypt, Israel, Germany, Ireland, Japan, Italy, United Kingdom or Romania are exempt by treaty. Those in India that receive Social Security benefits from the U.S. because of services performed in the U.S. but are nationals and residents of India, pay no taxes. Those residing in Switzerland pay 15 percent tax on the total amount of Social Security.
U.S. Citizens Living Abroad
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You pay no taxes on your Social Security if you live in Canada, Egypt, Israel, Germany, Ireland, Japan, Italy, the United Kingdom or Romania
Who Pays
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Even though you may receive Social Security for your child in your name, the tax calculation is based on the child's income, not yours. The IRS decides whose income to use, not by the name on the check, but by the name of the recipient.
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References
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