Taxable Benefits
Social Security benefits can be a great help for many seniors and disabled individuals, but did you know that these benefits may also be taxable? Up to 85% of your Social Security benefits can be counted as taxable income if you meet certain requirements.
According to Mark Steber, chief tax information officer at Jackson Hewitt, all income is considered taxable unless it’s exempted by law. Some exemptions include inheritance, gifts, death insurance, and life insurance. However, when it comes to Social Security, federal taxes may need to be paid on a portion of your benefits if your income falls within certain levels.
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Here’s a breakdown of how much of your Social Security benefits will be federally taxed based on your income:
- Up to 85% of your benefits are taxable if half of your Social Security benefits plus all other income is more than $34,000 for individuals or $44,000 for married couples filing jointly.
- 50% of your benefits are taxable if half of your Social Security benefits plus all other income is between $25,000 to $34,000 for individuals or $32,000 to $44,000 for married couples filing jointly.
- None of your Social Security benefits are taxable if your income falls below the above levels for individuals or couples filing jointly.
It’s important to note that Supplemental Security Income (SSI) payments are never taxed, according to the IRS.
If you find that your Social Security benefits are taxable, there are options for paying federal income taxes. You can file quarterly estimated tax returns with the IRS, ask Social Security to withhold federal taxes from your benefit payment or pay the full amount at tax time.
In addition to federal income taxes, twelve states also tax some or all of residents’ Social Security benefits, according to AARP. It’s important to research your individual state’s tax laws to determine if you will owe state taxes on your benefits.
You can visit an online tool from IRS that can help you determine whether your benefits are taxable. It’s important to understand your tax obligations so that you can plan accordingly and avoid any surprises come tax time.
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