By Theresa Fry, Senior Vice President and Manager, IRA’s, Retirement and Education Planning
At one time, all Social Security benefits were tax free. Today, if your only source of retirement income is Social Security, then your benefits may still be tax free. Most people pay income taxes on a portion of their Social Security income. The higher your income, the more taxes you’ll pay on your benefits.
Taxes on Social Security are determined based on your combined or “provisional” income. Provisional income results from adding together your Adjusted Gross Income (AGI), your tax-exempt interest (for example, interest from municipal bonds or U.S. savings bonds), and half of your annual Social Security benefit amount. AGI includes income from a variety of sources. If you are still working (or your spouse is still working and you file a joint tax return), wages or self-employment income would be included in your AGI. Other sources of income that can increase your AGI include interest income, dividends, and taxable distributions from 401(k)s, IRAs, and pensions. Qualified Roth IRA distributions are income tax free, and therefore are not included in your AGI or your provisional income.
The chart below provides a summary of Social Security taxation based on your tax filing status and provisional income. These amounts are not adjusted for inflation, so over time, more and more people will have to pay income taxes on their Social Security benefits.
| If your tax filing status is… | And Your Provisional Income is… | Then… |
| Single | Less than $25,000 | 0% of Social Security Benefits are Taxable |
| $25,000 – $34,000 | Up to 50% of Social Security Benefits are Taxable | |
| More than $34,000 | Up to 85% of Social Security Benefits are Taxable | |
| Married, Filing Joint Return | Less than $32,000 | 0% of Social Security Benefits are Taxable |
| $32,000 – $44,000 | Up to 50% of Social Security Benefits are Taxable | |
| More than $44,000 | Up to 85% of Social Security Benefits are Taxable |
If your benefits are taxable, you can instruct Social Security to withhold taxes from your monthly benefit payments. They offer four choices: 7%, 10%, 12% and 22% (Note: State taxes on Social Security vary, so check with your tax professional if you need help).
Benjamin F. Edwards does not provide tax advice; therefore, it is also important to consult with your tax professional for additional guidance tailored to your specific situation.