How To Know If Your Social Security Is Taxable

How To Know If Your Social Security Is Taxable

You’ve worked hard for decades, and now you want to enjoy your golden years. If planned to have a nice standard of living in retirement, you are likely going to get hit with income taxes. The more retirement income you have, the more taxes you likely pay, just the way it is. The myth that Social Security is not taxed is just that, a myth.

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An estimated 60% of retirees will owe no federal income taxes on their Social Security Benefits. Which is likely where many people come to believe Social Security benefits are tax-free. They are not. This just means that a majority of retirees are living on what could be described as low income.

The good news is that Social Security income is not taxed quite as heavily as other forms of retirement income. Regardless of how much you make in retirement, at least 15% of your Social Security benefits will come to you tax-free.

Can You Live On Social Security Alone?

Surviving on Social Security alone in retirement would be difficult for most. The average person received just $17,040 per year in 2019. The maximum Social Security benefit for 2020 is expected to be $2861 at full retirement age. (More if you wait until 70). For sure this is a good amount of money, don’t get me wrong, but not exactly living rich.

How much of your Social Security benefits will be taxed will ultimately depend on your other income sources. This will be a combination of all other earnings in a given year, plus some portion of your Social Security benefits. These other sources will include everything from distributions from your 401(k) or IRA, wages from work, royalties or rental income.

Most people know to have a strategy to get the largest Social Security Benefits throughout their retirements. Having a plan to pay the least amount of taxes on your Social Security benefits it much less common.

Keep reading to learn more about Social Security taxation.

How is Social Security Taxed?

Let’s get down to the nuts and bolts of how your Social Security will be taxed, that is why you are still reading this, right? Social Security taxation is based on your provisional income.  Your provisional income is equal to your adjusted gross income (AGI) plus nontaxable interest (think municipal bonds), plus 50% of your SS benefits. The provisional income total is then applied to the following income limits to determine your actual tax rate. For this conversation, I am just talking federal income taxation; you may owe additional taxes at the state level, depending on where you live.

Income Range With No Taxes On Social Security

When your provisional income falls below $25,000 as a single filer or $32,000 as a married filer, no taxes will be owed on Social Security benefits. Big win on the tax front, not such a big win on the standard of living.  I know I couldn’t pay my property taxes and electric bill with that amount of income. Let alone have the retirement I’ve worked hard for.

Income Range Where 50% of Social Security Is Taxable

For those with a provisional income between $25,001 and $34,000 filing single, or $32,001 and $44,000 filing as married jointly, just 50% of your Social Security benefits will be taxed at your marginal tax rate. For 2019, most of your income would likely fall into the 12% federal income tax bracket….Read more>>

Source:-forbes

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