Among the most confusing pieces of Social Security is how the benefits are taxed. There are specific income levels to consider alongside the specific kinds of benefits that you’re receiving.
Income Levels for Social Security Taxes
For individuals, if your income is more than $25,000 or for married couples filing jointly, $32,000, you must pay income taxes on your Social Security benefits. Anything below those numbers and your benefits are not taxed. This applies to spousal, survivor, disability and retirement benefits.
For tax years 2019 and 2020, single filers who made between $25,000-$34,000 must pay income taxes on up to half of their benefits. Combined income of more than $34,000 means taxes of up to 85% of benefits, but that is the maximum possible taxation amount.
The IRS treats your total income picture as your adjusted gross income plus nontaxable interest plus half of your Social Security benefits.
Some states also assess a tax on benefits, but Oregon is not one of them.
Is SSI Taxable?
No, Supplemental Security Income is never taxable.
How to Plan for These Taxes
You’re able to file quarterly estimated tax returns with the IRS or ask Social Security to withhold federal taxes from your payouts. It’s always a wise idea to set aside more than you think you’ll need for taxes, so there are no surprises at the end of the calendar year.
For retirees, it’s probably easier to have taxes withheld for easier calculations later on.
Adding Retirement Into the Mix
Saving into or converting into a Roth IRA could be a good option to minimize tax burden later on as you pay taxes on contributions at the beginning instead of paying taxes when you withdraw. You’re also not required to begin taking contributions by a certain age or date unlike a traditional IRA or 401(k).
Understanding the tax structure of Social Security benefits is key to making the most of what you’ve worked so hard to earn. If you have additional questions about the process, it could be wise to consult a qualified Social Security attorney like those at Drew L. Johnson, P.C. Call us today at (541) 434-6466 to learn more and schedule a free consultation.
