For those not entirely familiar with Social Security benefits, at age 62, one can start collecting. This does, of course, mean that the amount of your monthly benefit will be somewhat less than if you would wait until age 65 or 67 (full retirement age). But, the way some people see it, why put off until tomorrow (or several years from now) what you can do today?
You might get federally taxed on your Social Security payments if you have additional income. You’ll also take a hit if you owe back taxes.
Social Security Is Your Single Source of Income
Unless you file a separate return from your spouse, you will (in all probability) not have to pay federal income tax on your Social Security payments – provided they are your singular source of income. Social Security benefits, as a base income, are tax exempt. There is the possibility that you might have to pay income tax if you are entitled to huge Social Security benefits (as a result of an exceedingly high income when you were employed). In that case, you may find yourself above the tax-exempt amount.
Your total annual gross income and your marital status have everything to do with the Social Security benefits amount that the IRS will exempt from taxation. Tax-free income base amounts are classified in the following manner:
- Married filing separately (during the previous year, living with spouses)
- Qualifying widower, head of household, single with a dependent child; or married filing separately (during the previous year, not living with spouses)
- Married filing jointly
Check with a professional to see what the current amounts are for these classifications.
Combined Income Calculation
To calculate your combined income, do the following: take the previous year’s income and add it to half of your annual Social Security benefits. Included should be income that is tax-exempt, and any other taxation excluded income. That amount is going to be compared to the base amount (from above) to find your applicable tax filing status. Is the total more than your base amount? If that is the case, you might (on at least a portion of your benefits) be subject to federal income taxes.
If you end up getting taxed, there is a formula, established by the IRS, that is used to determine the taxable percentage of your benefits. It is based on your tax filing status and your income. Again, check with a professional to find out what the current formula is.
Lessen the Bite The IRS Takes Out Of Your Benefits
Even if you are subject to paying taxes on your Social Security benefits (or part of them), there is still hope. Just like regular income, the benefits you receive from Social Security are entitled to tax credits and deductions. This can help to minimize your federal income tax obligation. Ask a tax professional about legitimate tax breaks. It’s definitely worth investigating.
If you have questions about taxes at a federal level, who better to answer those questions than a seasoned, knowledgeable, reputable professional? The agents and lawyers at Tax Defense Partners have hundreds upon hundreds of success stories to their credit. You could be one of them. Contact us today for free consultation and find out why so many success stories are associated with the dedicated professionals at Tax Defense Partners.