TAX TIP No. 37
Some Social Security benefits may be taxable
You've planned for decades, saved your money and are ready
for a comfortable retirement. You're plotting the perfect route for that cross-country
trip, signing up for an art class you never had time for or getting standing
tee times for 36 holes of golf a day.
Taxes certainly aren't on your retirement to-do list.
But maybe they should be.
If you collect Social Security, some
of it might be taxable depending on your total income and marital status. Retirees
should have gotten Form SSA-1099 from the Social Security Administration at the end of January or early February.
form will show your total benefits, but figuring out just how much is taxable
requires putting pencil to paper or, if you're using tax software, fingers to
Social Security alone is usually excluded
Generally, if Social Security
is your only income, your benefits are not taxable, and you probably do not need
to file a federal income tax return.
From the Internal Revenue
Service's standpoint, Social Security benefits include monthly survivor and disability
benefits, but not supplemental security income payments, which are not taxable.
But if you collect other income in addition to Social Security,
you could owe taxes on at least a portion of your government benefits.
Potential tax preview
a quick computation of your potential tax liability, add one-half of your Social
Security benefits to all your other income.
In this calculation,
you must also take into account
any tax-exempt interest you
earned, as well as exclusions
from income such as savings
bond interest, work-provided
adoption benefits or foreign-earned
If this amount
is greater than the base amount for your filing status, a part of your benefits
will be taxable.
amounts for figuring possible
tax liability on benefits
for single, head of household, or qualifying widow or widower with a dependent
for married individuals filing separately and who did not live with their spouses
at any time during the tax year.
for married couples filing jointly.
for married persons filing separately who lived together at any time during the tax year.
Figuring your tax bill
Once you determine that Uncle Sam is going to get
a cut of your Social Security benefits, the next question to answer is precisely
how big a bite he will take.
Generally, up to half of your
benefits will be taxed if you exceed the base amounts. However, up to 85 percent
of your benefits could be taxed if you are a single filer and the total of all
your other income plus half of your Social Security checks exceeds $34,000, or
$44,000 if you are married and file jointly.
You'll need to
complete the work sheet found in your Form 1040 or 1040A instruction book, or
in your tax software package, to find out the exact amount.
Paying throughout the year
If your government pension money is taxable,
you can avoid estimated
tax payments and minimize your tax bill next year by having federal income
tax withheld from your benefits.
Simply complete Form
W-4V, Voluntary Withholding Request, and file it with the Social Security
Administration. You can choose to have 7 percent, 10 percent, 15 percent or 25
percent of your total benefit payment withheld.
If you subsequently
decide you don't want the taxes withheld, you can file another W-4V to stop the
Additional information on the taxability of Social
Security benefits is in IRS
Publication 915, Social Security and Equivalent Railroad Retirement Benefits.
|-- Updated: Feb.