You have finally retired. You have got to the age at which you can begin to collect social security. Life is easy … or not? Tax time is running out, and the obvious question arises: do you have to pay the income tax of social security benefits in 2018 or 2019?
It depends. They may be non-taxable or partially taxable, depending on the additional income obtained from other sources.
If Social Security Is Your Only Income
Your retirement income is probably not taxable if you have never invested in this 401 (k), if you do not collect money by renting a property and if you have stopped working entirely. These are just examples: the fact is that you have no other form of income from any source.
In this case, you will not have to pay income tax on social security benefits unless these benefits are really large and exceed certain thresholds, which is unlikely.
If You Have Other Income
Part of the reward may be taxable if you have other sources of income in addition to social security benefits. The taxable share will correspond to 50% or 85% of the services.
Note: You can use the social security sheet in the instructions on form 1040 to calculate the tax base based on your situation.
Start by calculating your ‘provisional income,’ then compare it to the basic amounts in the following table. Your temporary income is your total income from all other sources, including tax-exempt interest, in addition to half of the social security benefits.
These basic amounts are used to calculate the taxable share of social security benefits for fiscal years 2018 and 2019.
How the Base Amount Works
Let’s say you collect $ 15,000 a year in investment income. He continues to work one day a week just to get out of the house and, yes, to make ends meet, and he made $ 7,000 while doing so during the year. You have collected $ 18,000 a year in social security benefits. Half reaches $ 9,000.
As a result, your middle income is $ 31,000: your investment income is $ 15,000 plus your salary is $ 7,000 plus $ 9,000 or 50% of your social security benefits. This is $ 6,000 more than the limit of $ 25,000 if your marital status is a single, qualified widower, or breadwinner. Therefore, you will have to pay taxes on the part of the social security benefits.
The disadvantage of this example is that retirement benefits would have been tax-free if your retirement investments had only started at $ 7,500. This would place it below the $ 25,000 temporary income threshold, even if you keep this job part-time. Your investment income of $ 7,500 plus $ 7,000 in salary plus half of Social Security benefits or $ 9,000 equals $ 23,500.
The same would apply if you quit, but your investments continued to provide $ 15,000 a year in income. Your benefits would be tax-exempt if your total income was less than $ 25,000.
You can make some changes to your income if you plan ahead. For example, you may want to quit this job for one day a week if it appears that your investment income and half of your benefits will push you to reach this temporary income threshold.
Consider consulting with a tax specialist to more accurately determine your possible liability if you have multiple sources of income. You may want to know to what extent your earnings really are stored in your pocket after taking into account all taxes, not just taxing your social security benefits.
About That ‘Additional’ Amount
Then there is this other column, the “additional amount.” Sticking with this total income of $ 31,000, this amount is higher than the basic amount for your single marital status but less than this additional amount of $ 34,000. This means that you have to pay taxes on 50% of the social security benefits.
Note: It is not a 50% tax rate. This means that you will have to declare and pay income tax on 50% of your social security income.
You must pay 85% tax on social security benefits if your total middle income exceeds $ 34,000 in 2018 or 2019; In this example, $ 15,300 or 85% of the $ 18,000 in benefits.
Rules for Married Couples
If you are a married person and file a joint tax return, the same basic amount and additional sum rules apply, but it would be measured on the basis of your salary and social security benefits. Income thresholds increase accordingly to reach $ 32,000 in provisional earnings and $ 44,000 for an additional amount.
There are two ways for married couples filing separate tax returns to determine the taxable part of their social security benefits. If they lived together in the same family at any time during the fiscal year, this reduces the base amount to zero. You will pay taxes on the part of the social security benefits.
Married couples who lived apart from each other during the year can use a base amount of $ 25,000 and an additional income of $ 34,000 to calculate the taxable portion of their benefits as if they were single.
Note: In both cases, regardless of whether you are married or single, the taxable portion of social security benefits cannot exceed 85% of the total benefits.
Withholding on Social Security Benefits
You can choose to withhold federal income tax from Social Security benefits if you have reason to believe that you will end up paying taxes on some of them. Federal income tax can be deducted at a rate of 7%, 10%, 12%, or 22% from 2019. However, it is limited to these exact percentages; You cannot choose another percentage or a fixed amount.
Complete Form W-4V, the Social Security Source Deduction Form, so that the Social Security administration knows how many taxes you want to keep.
State Taxes Are Different
Although most states exclude social security income from the tax, 13 states will also tax social security benefits as of April 2019:
- New Mexico
- North Dakota
- Rhode Island
- West Virginia
Some of these states will tax up to 85% of the benefits provided by the federal government. Others tax social security benefits to some extent but offer breaks based on their age and income level.
Remember to plan state taxes if you live in one of these states. Consider contacting a tax professional to determine which tax exemptions, if any, you may be eligible for.