Thursday, June 6, 2013

What You Need to Know about Social Security and Taxes

In case you are not aware, Social Security Benefits may be taxable and if you are receiving benefits you will need to determine whether you must pay on your benefits.  If you are receiving benefits currently, you will be sent for SSA-1099 a Social Security Benefit Statement each year, no later than early February. 

The taxability of your benefit is determined by your level of income and your filing status.  If Social Security is your only income, the benefit is probably not taxable because your income will be less than the base amount required for taxes to be assessed.  But, if there was income coming in from other sources, you will need to determine whether taxes apply.

To make a quick determination, divide your Social Security benefit in half and add that amount to all of the other income from that tax year.  This includes interest from banks and other investments as well as interest from tax-exempt securities such as state and municipal bonds.  Compare this total to the following base amounts:
  • $25,000 for single, head of household, qualifying widow(er) with a dependent or married individuals filing separately who did not live with their spouse at any time during the year. 
  • $32,000 for married couples filing jointly
  • $0 for married persons filing separately who lived together at any time during the year.
Using a tax professional to prepare your taxes will ensure that the calculations are done correctly and there are no future surprises. 

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