Are Social Security Benefits Taxed?
Hudson, NH Resident Nearing Retirement Has Questions
If your individual income exceeds $25,000 or $32,000 for couples filing jointly, you must pay taxes on your Social Security benefits. Any income lower than this, the benefits are not taxed. Incomes between $25,000 and $34,000 for individuals and $32,000 and $44,000 for joint filers can have up to 50% of their benefits taxed. If your income exceeds that threshold, up to 85% of your Social Security can be taxed.
A Hudson resident was planning for his retirement in the next year. Wanting to make sure he understood what his income would be, he contacted Merrimack Tax Associates with questions about how his Social Security benefits would be taxed.
What is Considered Income for Calculating Social Security Taxes
Income is your adjusted gross income plus nontaxable interest income and your Social Security benefits. Some states are considering phasing out state taxation for Social Security benefits. Withdrawals from a traditional IRA are generally included in your taxable income. Qualified withdrawals from a Roth IRA are typically not considered income in your Social Security calculation. Keep in mind that if you choose to keep working part-time in retirement, this additional income will affect your benefits and will be counted toward the threshold, reducing your overall Social Security benefits.
How to Pay Taxes on Your Social Security Benefits
For those that are required to pay taxes on their Social Security benefits, you can ask Social Security to withhold the federal taxes from your benefit payment. Another option is to pay quarterly estimated taxes for the anticipated amount that you will owe. Paying taxes on Social Security benefits may be an unexpected expense for retirees, so it is best to plan ahead for this potential reduction in your income.
The Hudson resident is more confident about what to expect in retirement now that he has a better understanding of how his Social Security benefits will be taxed.