A question that I get asked often is, “Do I have to pay taxes on Social Security?” According to your number #1 silent partner (the IRS): “maybe”.
Depending on how much money you make determines if your social security gets taxed.
When There’s No Tax on Social Security
First things first, if the only income you make is social security, you do not get taxed on it. If fact, when social security is your only income, you don’t even have to file a tax return.
However, the moment you start making too much money outside of social security the IRS will tax it. You’re now asking yourself, “what’s too much money?” (Not a lot if you’re asking me.)
How much of my social security can get taxed?
The amount of tax you pay on social security is based on a cumbersome equation by the IRS called Combined Income (this is different from other IRS equations such as: Total Income or Adjusted Gross Income.)
Combined Income equals your adjusted gross income (AGI) + non-taxable interest + 1/2 of your social security benefits.
If your combined income is greater than certain combined income thresholds, you will pay tax on between 50% to 85% of your social security.
You’re now asking yourself, “what are the combined income thresholds?” (Once again… not a lot if you’re asking me.)
IRS Social Security Thresholds
The combined income thresholds are different depending on whether you’re single or married. If you’re single and your combined income is between $25K to $34K, you pay tax on 50% of your social security. If your combined income is more than that, you will pay tax on up to 85% of your social security. The thresholds are a little wider if you’re married, but not by much.
Here’s a chart that shows you how much of your social security could get taxed.
|Filing Status||50% of Social Security taxed||up to 85% of Social Security taxed|
|Single, and your combined income is:||between $25,000 to $34,000||More than $34,000|
|Married, and your combined income is:||between $32,000 to $44,000||More than $44,000|
Jerry is a retired teacher and makes $20,000 a year from social security. He also receives $40,000 a year from his pension. His combined income is $50,000 ($40,000 pension + 1/2 of $20,000 social security). Since his combined income is over $34,000, he will pay tax on $17,000 of his social security benefits ($20,000 x 85%.)
I know what you’re thinking, “why are they attacking my social security?” Because that’s how the Government rolls. The moment you make too much money, they will always want some of it, even your social security.
In case you’re wondering how much in social security you’re getting; your social security is based on the number of social security credits you’ve earned over 40 years. I wrote an article about it, check it out here.