Social Security: Benefits and Taxes

If taxes were also a thing of the past once you’re retired and no longer earning wages, it’d be nice. Unfortunately, you may not be able to leave your tax bill behind along with your job. Actually, one Social Security administration study forecast that an average of 56% of beneficiary families would pay taxes on their Social Security benefits between 2015 and 2050.

Why Social Security is Taxable

Once upon a time, Social Security benefits were completely tax-free. Subsequently, in 1983, President Reagan signed an amendment making up to 50% of Social Security benefits taxable. In 1993, President Clinton signed a bill that (among other things) made up of 85% of “higher income” Social Security recipients’ benefits subject to taxation. Sadly, that bill didn’t provide a method for raising the tax’s income thresholds in response to inflation, so what was once a “higher income” threshold now contains a much wider range of Social Security beneficiaries.

The Best Way To Learn If Your Benefits Will Be Taxed

The very first step in determining whether your benefits will be taxable is to compare your income to the base brink. If you are already receiving Social Security benefits, then your annual Form SSA-1099 will tell you how much you received in benefits during the last year. In the event you’re not yet receiving benefits, you can look at your Social Security statement and use the estimated benefit from that form. Just take the monthly estimated benefit number and multiply it by 12 to see how much Social Security money you’ll be getting per year.

Next, divide your annual Social Security benefit by two. Add this number to any other taxable income you received during the year, plus tax-exempt interest earnings. The total is what’s known as your “provisional income,” and if it exceeds a particular threshold based on your own filing status, then your gains will be at least partially taxable:

Note that “up to” that percentage of your Social Security benefit will soon be taxable if your provisional income exceeds the threshold. You might be taxed on a much lower percentage of your benefit depending on the makeup of your income. To figure out how much of your benefit have a look at IRS Publication 915, might be subject to tax or simply plug some numbers into our calculator that is easy.

How to minimize your tax bill

Obviously, it’s to your benefit to minimize how much of your Social Security will be taxed, if possible. For most retirees, it is distributions from traditional IRAs and 401(k) accounts that push their taxable income over the threshold and cause their Social Security to be taxed. Regrettably, you don’t have complete control over how much cash you take out of these accounts: The IRS requires you to take required minimum distributions once you hit age 70-1/2. Your only choice with traditional retirement accounts is to limit yourself to the required minimum distribution (assuming that’s enough for you to live on) and hope those funds won’t shove you over the taxation brink.

If you are fortunate enough to have a Roth, you’re in a much better position to control your Social Security tax. Roth distributions are not taxable income, so they do not count toward the income threshold that determines whether your benefits are taxable. And there’s no required minimum distribution from Roth accounts, so you can take distributions when it makes the most sense for you and leaves the rest to keep growing for as long as possible.

Read more: Top Tips for Minimizing Taxes on Social Security

Get your Social Security Benefits Statement Online

Social Security is with you through life’s journey, putting you in control of your finances and future. With this in mind, we have made getting a replacement Social Security Benefit Statement even easier. Now you can instantly print or save a replacement anytime you want. That’s control!

The Benefit Statement also called the SSA-1099 or the SSA-1042S, is a tax form Social Security mails each year in January to people who receive Social Security benefits. It shows the total amount of benefits you received from Social Security in the previous year so you know how much Social Security income to report to the IRS on your tax return.

An SSA-1042S is for a noncitizen who resides outside America and received or repaid Social Security benefits last year.
In case you already have my Social Security account, you can access your online account to view and print your SSA-1099 or SSA-1042S. If you don’t have my Social Security account, creating a secure account is very easy to do and usually, takes less than 15 minutes.

Social Security Payroll Tax

For tens of millions of Americans, Social Security is an irreplaceable lifeline that ensures they can meet their monthly expenses.
According to data from the Social Security Administration (SSA), 61% of current beneficiaries count on their Social Security benefits for at least half of their monthly income. This figure is even higher for unmarried elderly individuals (71%). Suffice it to say that without Social Security income, the poverty rate for retirees would be a lot higher.

Social Security’s Shortfall Inches Closer

Yet America’s most crucial program for seniors isn’t on the most solid financial ground. As stated by the Social Security Board of Trustees’ report from this past year, Social Security’s Old-Age, Survivors, and Disability Insurance (OASDI) Trust is likely to burn through its reserves of more than $2.8 trillion by 2034. This dwindling of Social Security’s cash cushion down toward zero is what has led a lot of working Americans to believe that the gain will not be around for them by the time they retire.

Now, despite this worrisome forecast, there is a little good news: Social Security is not going anywhere anytime soon. While advantages for present and future retirees could be adjusted downward to keep the system solvent, payroll taxes ensure that Social Security will be there for future generations. As long as people keep working, Social Security will keep receiving fresh revenue that it can pay out to its eligible beneficiaries.