why do we pay taxes on social security
It used to be so simple: Social Security benefits were tax-free. Period. But then, as part of a "Save Social Security" plan, Congress decided to tax up to 50% of benefits. Later, lawmakers decided to tax up to 85%, with the extra revenue going to shore up Medicare. See Also: So, who gets taxed and who doesnБt? First the good news: About 70% of all beneficiaries are still safe. YouБre among the 18 million or so who arenБt so lucky, though, if your Бprovisional incomeБ is more than $25,000 on a single return or $32,000 on a joint return. Provisional income is adjusted gross income (not including Social Security) plus 50% of your benefits plus any tax-free interest from municipal bonds. If that income is between $25,000 and $34,000 on a single return or between $32,000 and $44,000 on a joint return, up to 50% of your benefits can be taxed.
The rest is tax-free. Now, if your provisional income is more than $34,000 on a single return or $44,000 on a joint return, itБs likely that 85% of your benefits will be taxed. If you use tax software, it will automatically determine the correct amount. Otherwise, use the IRSБs 18-line worksheet to pinpoint exactly how much is taxed and how much is tax-free. Finally, donБt assume that your state taxes the same amount of benefits as Uncle Sam. In most states, Social Security is still completely tax-free. Take a look at our
to learn more about how you will be taxed during retirement based on where you live. See Also: If you re already drawing Social Security or if you plan to start doing so in the near future you might be wondering: Is Social Security taxed? Tax experts say it s an important question, especially because many Baby Boomers who are currently receiving Social Security benefits are also still in the workforce and earning income.
The answer is not that simple: Social Security benefits are taxed for some people, but not others. Social Security taxation is complicated, but not as complicated as Social Security itself, said Gil Charney, director at The Tax Institute at. Taxpayers Social Security benefits are not taxable until their income reaches a certain level, which depends on your filing status. If you currently draw income from a retirement account or pension, you could have to pay taxes on some of your Social Security benefits. Another reason you might find that your Social Security is taxed is if you re also still working even if it s a part-time job, gig economy work like driving for Uber or working as a self-employed consultant. To see if your Social Security will be taxed, you have to look at your combined income and your marital status, said Lisa Greene-Lewis, tax expert for.
Typically, Social Security won t be taxed unless you receive additional income. For taxpayers wondering, is Social Security taxed, there s a formula you can use. The IRS provides a quick way to find out if you must pay taxes on your Social Security benefits, said Mark Jaeger, director of tax development at. To find out your for purposes of calculating Social Security taxes, add your adjusted gross income, any nontaxable interest you earned over the course of the year, and half of your Social Security benefits. The gist is that if you re single with combined income above $25,000, or married filing jointly with combined income of more than $32,000, you can expect to pay taxes on half your Social Security benefits. But if you re single and your combined income is more than $34,000, or more than $44,000 if you re married and filing jointly, you could see up to 85% of your Social Security benefits taxed.
For anyone using tax prep software like to do your taxes, the program will automatically figure out if and how much of your Social Security income will be taxed. The good news is that no more than 85% of your Social Security benefits will be taxed. Still, tax pros say it s good to keep those income thresholds in mind if you plan to keep working in retirement. Depending on your situation, it could be wise to consider or retirement plan distributions. If you do owe taxes on Social Security, the you can either make quarterly payments or have them automatically withheld from your Social Security benefits. We ve included affiliate links into this article. to learn what those are.
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