Q: I recently turned 66 and started receiving my Social Security benefits. Will I have to pay taxes on this income?
A: On the Social Security website, www.SSA.gov, they state that “some people have to pay federal income taxes on their Social Security benefits. This usually happens only if you have other substantial income (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return) in addition to your benefits.”
Federal income tax can be charged on up to 85% of your Social Security benefits based on Internal Revenue Service rules. There is a formula they use for “combined income.” This formula is:
your adjusted gross income + nontaxable interest + ½ of your Social Security benefits = your "combined income."
If you file a federal tax return as an "individual" and your combined income* is:
• between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits; or
• more than $34,000, up to 85% of your benefits may be taxable.
If you file a joint return and you and your spouse have a combined income* that is:
• between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits; or
• more than $44,000, up to 85% of your benefits may be taxable.
Or, if you are married and file a separate tax return, you probably will pay taxes on your benefits.
One of our goals at Financial Freedom Wealth Management Group, LLC is to focus on minimizing taxes where possible for our clients. We can often redesign income/distribution strategies once you start drawing Social Security to accomplish this. Please call us at 541-574-6464 or email us at [email protected], we are happy to answer any questions.
Julia Carlson is a registered Principal with, and securities are offered through, LPL Financial. Member FINRA/SIPC. Content in this material is for general information only and not intended to provide specific individualized tax advice or recommendations for any individual. We suggest that you discuss your specific tax issues with a qualified tax advisor.