Is Social Security taxable? (Update 2023) – SmartAsset (2023)

Is Social Security taxable? (Update 2023) – SmartAsset (1)

Social Security income is generally taxed at the federal level, whether or not you have to pay income tax.Social Security BenefitsIt depends on your income level. If you have other sources of retirement income, such as401 (k)or a part-time job, then you should expect to pay some income taxes on your Social Security benefits. However, if you rely solely on your Social Security checks, you probably won't pay taxes on your benefits. State taxes on Social Security, on the other hand, vary from state to state. Anyway, it can be usefulWork with a financial adviserwhich can help you understand how different sources of income are taxed in retirement.

Is Social Security income taxable?

According to the IRS, the best way to determine if you owe taxes on your Social Security income is to take half of your Social Security benefits and add that amount to all your other income. This includes tax-free interest. This number is called your combined income and is calculated like this:

Combined income =Adjusted Gross Income (AGI)+ Non-taxable interest + 1/2 of Social Security benefits

If your combined income is above a certain limit (the IRS calls this limit the base amount), you must pay at least part of the tax. The limit for 2023 is $25,000 if you are a single applicant, head of household, or eligible widow(er) or widow(er) with a dependent child. The 2023 limit for joint applicants is $32,000. However, if you are married filing separately, you may have to pay taxes on your Social Security income.

(Video) SmartAsset Review 2023: Best Source Of Financial Education?

How to Calculate Your Social Security Income Tax

If your Social Security income is taxable, the amount you pay depends on your totalretirement income. However, you never pay taxes on more than 85% of your Social Security income, although income brackets vary by filing status.

If you file your income tax return as an individual with a total income of less than $25,000, you do not have to pay taxes on your Social Security benefits. Single people with a combined income of $25,000 to $34,000 must pay income taxes up to 50% of their Social Security benefits. If your combined income is more than $34,000, you pay taxes on up to 85% of your Social Security benefits.

For married couples filing jointly, you pay tax on up to 50% of your Social Security income if you have a joint income of $32,000 to $44,000. If you have a combined income of more than $44,000, you can expect to pay taxes on up to 85% of your Social Security contributions.

If 50% of your profits are taxable, the exact amount you include in your taxable income (that is,formulate 1040) is the smaller of the two:

  • half of your annual Social Security benefits OR
  • half the difference between your combined income and the IRS base amount

Here's an example: Let's say you're a single claimant who receives a monthly benefit of $1,827, which is the average benefit for 2023. Your total annual benefits would be $21,924. So let's say she has a total income of $30,000. Half of the total profit from him would be $10,962. The difference between her combined income and the base tax bracket (which is $25,000 for single parents) is $5,000. Therefore, the taxable amount you would enter on your federal income tax form is $5,000 because that is less than half of your annual Social Security benefit.

The example above is for someone who pays taxes on 50% of their Social Security benefits. It gets more complicated if you pay taxes on 85% of your profits. However, the IRS helps taxpayers by providing software and a worksheet to calculate Social Security tax liability.

(Video) Trying out the SmartAsset.com Retirement Calculator

How to File Social Security Income on Your Federal Taxes

Once you have calculated the amount of your Social Security taxable income, you must enter that amount on your income tax form. Fortunately, this part is easy. First find out the total amount of your benefits. This can be found in box 3 of your SSA-1099 form. Then, on Form 1040, enter the total amount of your Social Security benefits on line 5a and the taxable amount on line 5b.

State taxes on Social Security benefits

Is Social Security taxable? (Update 2023) – SmartAsset (2)

All of the above relates to your federal income taxes, which make up the majority of your taxes. Depending on where you live, you may also have to pay state income taxes.

There are 12 states that tax at least a portion of Social Security income. Two of these states (Minnesota and Utah) follow the same tax rules as the federal government. So if you live in either of these two states, you pay the state's regular income tax rates on all of your taxable earnings (ie up to 85% of your earnings).

The other federal states also follow the federal rules, but offer themdeductionsor exemptions based on your age or income. So in these nine states, you probably don't pay tax on the full taxable amount.

The other 38 states and more Washington, D.C. not tax social security income. Here's a full breakdown of the states that do and don't tax Social Security:

(Video) Why 2026 Should Impact Your Tax Planning

State taxes on Social Security benefits
Taxed under federal regulations Minnesota, Utah
Partially taxed (income and age allowances) Colorado, Connecticut, Kansas, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Vermont, West Virginia
No state taxes on Social Security benefits Alabama, Alaska, Arizona, Arkansas, California, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin, Wyoming

The Impact of Roth IRAs on Social Security Taxes

If you're worried about your income tax bill when you retire, consider saving on aIRA Roth. Unlike many other retirement accounts, in a Roth IRA you save with after-tax dollars. Because you pay taxes on the money before you put it in your Roth IRA, you don't pay taxes when you withdraw your contributions. You don't have to withdraw the money at a specific time, even after you retire. This differs from payments from traditional IRAs and 401(k) plans. this insteadrequires you to start making withdrawalsas soon as you are 72 or 73, depending on when you turn 72 (if you turn 72 in 2023 or later, then you will be 73).

Therefore, when calculating your combined income for Social Security purposes, your withdrawals from a Roth IRA do not count as part of that income. That could make a Roth IRA a great way to increase your retirement income without raising your taxes when you retire.

Many retirement plans also allow people age 50 and older toannual recovery contributions. You can make recovery contributions of up to $1,000. These must be filed before the due date of your tax return. You have until tax day to claim the catch-up contribution from the previous year.

Simplifying your Social Security taxes

During your working years, your employer probably withheld employment taxes from your paycheck. If you earn so much in retirement that you have to pay federal income taxes, you also have to withhold taxes from your monthly income.

To withhold taxes from your Social Security benefits, you must complete Form W-4V (Application for Voluntary Withholding). The form has only seven lines. You'll need to enter your personal information and then choose how much you want to withhold from your benefits. The only withholding options are 7%, 10%, 12% or 22% of your monthly benefit. After completing the form, mail it to an SSA office or deliver it in person.

(Video) SmartAsset Webinar: 10 Things Advisors Should Discuss With Clients Before the Year Ends

If you prefer to pay more accurate tax withholdings, you can submit estimated tax payments instead of SSA tax withholdings.estimated paymentsare tax payments you make quarterly on income from which an employer is not required to withhold tax. So if you've had income from self-employment before, you may already know the estimated payments.

In general, it is easier for retirees to have SSA taxes withheld. Estimated taxes are a bit more complicated and simply require you to do more work throughout the year. However, you should make the decision based on your personal situation. You can also change your strategy at any time by asking SSA to stop withholding.

bottom line

Is Social Security taxable? (Update 2023) – SmartAsset (3)

We all want to pay as little tax as possible. This is especially true in retirement, when most of us have a fixed amount of savings. But if you have enough retirement income to pay Social Security taxes, you're probably fine. This means that you have income from other sources and are not completely dependent on Social Security to cover living expenses. You can also save on your taxes at retirement just by having a plan.

Tips to save taxes in retirement

  • AFinancial Advisorcan help you create a retirement income plan. Finding a financial adviser doesn't have to be difficult.Free SmartAsset Toolconnects you with up to three verified financial advisors operating in your area, and you can interview your advisor matches for free to decide which one is right for you. When you're ready to find a counselor who can help you reach your financial goals,start now.
  • Planning ahead for retirement is incredibly important if you want to make sure you have enough money.SmartAsset Pension Calculatorcan help you determine what your plans are.
  • Also, consider your Medicare costs when planning your retirement income. Read the SmartAsset Guide to MedicarePhone A,part B,Part CYPart D.

Image Rights: ©iStock.com/Zinkevych, ©iStock.com/DNY59, ©iStock.com/DNY59

Amelie JosephsonAmelia Josephson is an author with a passion for financial education topics. Her areas of expertise include retirement planning and home buying. Amelia's work has appeared on the web, including on AOL, CBS News, and The Simple Dollar. She has degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.

(Video) FinovateSpring 2014 / SmartAsset

Videos

1. Smart Asset Selection 2022
(Fidelity Charitable)
2. IRS 2023 Inflation Adjustments to Tax Brackets, Inheritance Tax, Capital Gains || Who is Affected?
(TaxGuide101)
3. 🔴 Social Security Supplemental Income 2023 — Two March checks to go out as 33 states boost benefits
(Education & Travel Guide)
4. New Bill Will Eliminate Taxes on Social Security
(Heritage Wealth Planning)
5. FinovateSpring 2015 / SmartAsset
(Finovate TV)
6. Useful Retirement Calculators
(FrugalNotCheap)

References

Top Articles
Latest Posts
Article information

Author: Tuan Roob DDS

Last Updated: 07/21/2023

Views: 6042

Rating: 4.1 / 5 (62 voted)

Reviews: 93% of readers found this page helpful

Author information

Name: Tuan Roob DDS

Birthday: 1999-11-20

Address: Suite 592 642 Pfannerstill Island, South Keila, LA 74970-3076

Phone: +9617721773649

Job: Marketing Producer

Hobby: Skydiving, Flag Football, Knitting, Running, Lego building, Hunting, Juggling

Introduction: My name is Tuan Roob DDS, I am a friendly, good, energetic, faithful, fantastic, gentle, enchanting person who loves writing and wants to share my knowledge and understanding with you.