Tuesday, February 21, 2017

Taxing Social Security Benefits

With April around the corner, millions of Americans are gearing up for tax season. For some people this is a dreaded time, while others are elated as they eagerly await an expected tax refund. For those who receive government benefits from the Social Security Administration (SSA), Social Security and Social Security Disability Insurance (SSDI), this can be a time of confusion.

While SSA benefits are generally believed to be tax-free, there are some exceptions that many SSA-reliant Americans should be made aware. For instance, if you receive income for retirement, you might owe the Internal Revenue Service taxes on up to 85% of your SSA benefits, WKYC report. Your filing status (i.e. single or married) can also have an impact on how much of your social security benefits may be taxable. It can be a little tricky to figure out how much one owes in expected taxes in the year’s fiscal-quarters, but there is assistance.

If you make under $64,000 a year, you can simply e-file your return and the software will do the math for you regarding the taxable component of your benefits, according to the article. However, if you make over the aforementioned annual income, you will be expected to pay taxes on your Social Security benefits, so having an idea of how much to pay for your expected taxes is important. No one wants to pay more than they must, especially over the course of the year when that money might be greatly appreciated. Fortunately, there is a way to help determine how much you owe ahead of time.

Those receiving Social Security or SSDI income receive a Form SSA-1099 from the government. While the form lets you know the total amount of your benefits, it does not enlighten you about which of your benefits (if any) are taxable or at what percentage they are taxed. If you do not have an accountant, there are some ways for you to figure it all out.

Form SSA-1099 includes Notice 703, which can help guide you through the process. First, the helpful tool assists you summing up various income sources: SSA/SSDI benefit components, taxable income and Tax-Exempt Interest / Exclusions. From that total, deductions from your 1040 form are subtracted, according to the article. If the sum you derive is higher than the base value for your filing status, some of your benefits may be taxable.

If you still have questions about whether your social security benefits are taxable, see IRS Pub. 915 or your 2016 federal income tax return instructions, or visit IRS.gov and enter “social security income” in the search box. Reaching out to a qualified tax professional to help you determine your taxable benefits is advisable.

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