If you receive Social Security Benefits, are they subject to Federal and Local Taxes? The answer is, it depends! Like a lot of Social Security Benefits questions, the answer depends on your unique situation. If you want to know for sure what you should expect to pay, consult a tax professional. But we’ve laid out some Social Security Tax basics below so you can stay informed.
Nearly half of people who get Social Security benefits must pay federal taxes on them. Typically, this happens when you have other substantial income in addition to Social Security benefits. Substantial income includes wages, earnings from self-employment, interest, dividends, and other taxable income that must be reported on tax returns.
Every year in January, the Social Security Administration will mail you a Social Security Benefit Statement (Form SSA-1099 or SSA-1042S). This form will show the amount of benefits you were paid the previous year. When you complete your federal income tax return, you can use this benefit statement to determine whether your benefits are subject to tax.
Your Combined Income determines whether you will pay taxes on your SS benefits. You can calculate your combined income with this formula:
Your adjusted gross income + any nontaxable interest + half of your Social Security Income = Your combined Income
Once you have your Combined Income, you’ll need to determine whether you are filing taxes as an individual or filing a joint tax return with a spouse.
If your combined income is between $25,000 and $34,000, you may have to pay income tax on up to half (50%) of your benefits.
If your combined income is more than $34,000, you may have to pay income tax on up to 85% of your benefits.
If you are married and filing separately, you will most likely need to pay taxes on your benefits.
If you and your spouse have a combined income between $32,000 and $44,000, you may have to pay income tax on up to half (50%) of your benefits.
If you and your spouse have a combined income of more than $44,000, you may need to pay taxes on up to 85% of your benefits.
The SSA does not automatically withhold federal taxes from your benefits. If you would like to have federal taxes withheld from your benefits to avoid or reduce owing tax in the future, you must complete IRS form W-4V. You can find IRS form W-4V here. Once you have filled it out, mail or fax the completed form to the SSA.
Some states tax SSD and SSI benefits, while others do not.
See if your state requires you to pay state taxes on your benefits here.
If your combined income is below the tax threshold, you may not need to file a tax return. Keep in mind that certain benefits, like stimulus checks, require you to file a return. Because of this, it can be a good idea to file your taxes anyway.
For tax advice on your specific situation, you should consult a tax professional. If you have other questions about your Social Security Benefits, you can always contact your case manager or call our office!
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Jan Dils, Attorneys at Law
