Social Security benefits are divided into four basic categories: disability, retirement, survivors and dependents benefits. These benefits are paid based on the amount of the recipients earnings. All of these benefits belong to the Old Age, Survivors and Disability Insurance Program or OASDI, which is also the official name of Social Security. Not everyone is required to pay taxes on their Social Security benefits; however, there are certain situations in which the recipient does have to pay taxes. Here are some of the ways in which Social Security income is affected by taxes and what you need to know about these taxable benefits.
Taxable Social Security Benefits
According to the IRS, no one has to pay federal income tax on more than 85 percent of their benefits. If these benefits are your only source of income, then these funds are more than likely not taxable, and you also may not need to file a federal tax return. However, if you do have other sources of income, you will most likely have to pay taxes on some of your benefits. Whether or not you have to pay taxes on your Social Security benefits is largely based on your income and filing status.
The IRS offers a free and convenient system called the IRS Free File for you to know for sure if your benefits are taxable. Through this system, you are able to e-file your tax return. For recipients who earned $58,000 or less that previous year, the Free File tax software is available to help you figure out your taxable benefits. For recipients who earned more than $58,000, the previous year and are comfortable with filing their own taxes, the Free File forms are available and can be found on the IRS secure website.
Figuring out Your Taxable Benefits
You can also find out if your benefits will be taxed by hand. First, you should add ½ of your Social Security benefits to the total of all of your other income, including any tax-exempt interest. After that, compare the total to the base amounts that are applicable to your filing status. If your total is more than the base amount, then some of your benefits may be taxed.
- The base amount for a tax return filed as individual, single, head of household, qualifying widow or widower with child dependent, or married couples filing seperately who did not live with their spouse at any time during the previous year is $25,000.
- If your combined income falls between $25,000 and $34,000, you may have to pay taxes on up to 50 percent of your benefits.
- If your combined income is more than that, you may have to pay taxes on up to 85 percent of your benefits.
- For married couples filing jointly, the base amount is $32,000. If your combined income falls between $32,000 and $44,000, you may need to pay taxes on up 50 percent of your benefits.
- If your income is more than $44,000, then you may need to pay taxes on up to 85 percent of your benefits.
- For married couples filing separately who lived with their spouse at any point during the previous year, the base about is $0, and you will more than likely be taxed on your Social Security benefits.
Knowing and understanding how your Social Security benefits are taxed will make it that much easier for you to file your taxes each year. For more information on Social Security benefits and laws, contact The Law Offices of Dr. Bill LaTour today.