Tax season always brings about a bit of panic, as those who are getting Social Security benefits may be filing their first return since they started receiving payments. These payments, while a welcome addition to their financial support system, can feel uncertain (or even a bit burdensome) as the issue of tax liability comes to mind. Regardless of whether the payments are from spousal support, disability, or retirement benefits, the big question remains: “Will I owe taxes on this?”
Do you Have to File Taxes?
Not all payments will be taxable, and that information should come as a relief to most beneficiaries. While there are some exceptions, if the only income you receive is your Social Security payments, it’s very likely that you fall under the thresholds to pay taxes on that money. There is also a good chance that you make too little even to have to file.
What are the exact numbers? While the amounts will change once the new tax laws come into effect, for this spring filing (income earned in the 2017 tax year), anyone age 65 and over making a gross income under $11,950 or younger than age 65 earning under $10,400 will likely not have to file at all. These rules change a bit if someone else can claim you as a dependent, you are claiming head of household, or are age 65+ and blind. Since the number threshold isn’t the same for everyone, your best bet is to check out the IRS filing guidelines before you assume you don’t have to file.
(Note: Self-employed individuals earning just $400 or more from their business will also have to file – even if they fall short of the thresholds mentioned above.)
Are My Benefits Taxable?
The good news is that, even if you do have to pay taxes on your social security dollars, they are not taxed at a full 100%. That’s because – in most cases – only up to 50% of that money is considered taxable unless your MAGI is more than $34,000 as a single person or $44,000 as a married couple. In these particular cases, your benefits are taxable at up to 85%.
(MAGI, or Modified Adjusted Gross Income, is very close to your Adjusted Gross Income. You’ll be able to figure it out by adding untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest to your Adjusted Gross Income, and your accountant can help you find this number on your tax form if needed.)
Use Worksheets “A” and “1”
The best way to determine what is taxable and how much you’ll have to pay is by using worksheet A in Publication 915 (Social Security and Equivalent Railroad Retirement Benefits). You’ll be asked to total up all the amounts from box 5 of any Forms SSA-1099 and RRB-1099 that you received for 2017 as your total Social Security benefits. 50% of this number will then be added to any taxable income you received from pensions, wages, interest, ordinary dividends, and capital gain distributions. Finally, you’ll add in any tax-exempt interest.
This total will be compared to your “base amount.” The base amounts are currently:
- $32,000 for married filing jointly
- $25,000 for single, qualifying widow/widower with a dependent child, head of household, or qualifying married filing separately who lived separately
It’s important to note that the base amount for married filing separately and living together for any part of the year has a base amount of $0. So, you should avoid doing that, if possible.
If your totals from Worksheet A are less than your base amount, you don’t have to pay taxes on your Social Security Benefits. If your total is more than your base amount, you’ll have to pay taxes on some of your benefits. To figure out just which of your benefits will be taxed, you can go on to fill out the more thorough Worksheet 1 from the same Pub 915.
What If My Benefits Aren’t Taxable?
Remember, you may still have to file a tax return – even if your benefits aren’t taxable. For example, many older Americans who get Homestead Exemption or other credits will want to be sure they file and take full advantage of any money credit or refund.
You can work with your tax professional to be sure you are using the proper form for filing. Each form has its own purpose and benefit. If you can avoid using a more complicated form – and go with a 1040EZ or other “free to file” option – you should do so.