Is Social Security Taxable?
Yes, Social Security income is generally taxable at the federal level, but it depends on your income level. If you receive retirement income from sources like a 401(k) or part-time job, you could pay income taxes on your Social Security benefits. However, if you rely solely on your Social Security checks, you probably won’t pay taxes. State laws vary on taxing Social Security, so it’s a good idea to work with a financial advisor.
How to Calculate Your Social Security Income Tax
One way to determine if you will pay taxes on your Social Security income is by calculating your combined income. Start by taking one half of your Social Security benefits and adding that amount to all your other income, including tax-exempt interest. If your combined income exceeds a specified amount, you will need to pay tax.
Tax Calculation Example
Say you’re a single filer. If your combined income is above $25,000, you may need to pay taxes. For joint filers, the limit is $32,000. The amount you pay depends on your total combined retirement income. You will never pay taxes on more than 85% of your Social Security income.
Filing Your Taxes
Once you determine the amount of your taxable Social Security income, you will include it on your income tax form. You can also choose to withhold taxes from your Social Security benefits by filling out Form W-4V.
State Taxes on Social Security Benefits
In addition to federal taxes, some states have income tax on Social Security benefits. State laws vary, so it’s crucial to understand how your retirement income is taxed at the state level.
Consider a Roth IRA
A Roth IRA allows you to save after-tax dollars and may help reduce your tax burden in retirement.
Evaluating Your Retirement Plan
Adjust your retirement plan to minimize your tax liability and maximize your retirement income. With the help of a financial advisor, you can determine the best approach for your personal situation.
