At the end of last year, nearly 67 million people collected a Social Security check. The majority of those beneficiaries (47 million) were over the age of 65. Each year, many seniors grapple with whether any or all of those benefits are taxable. Here's what you need to know.
Social Security benefits are designed to supplement income in retirement (and provide certain benefits for the disabled, spouses and dependents). Typically, benefits work out to about 40% of pre-retirement income. However, the actual amount received can vary depending on your lifetime earnings. As of December 2017, the average monthly check for retired workers, excluding spouses and dependents, totaled $1,404.15, or $16,489.80 per year.
If Social Security benefits were 100% taxable, that amount would put you over the filing threshold for the 2017 tax year (that's the return you're filing now). That's because the filing threshold for single taxpayers over the age of 65 is $11,950 for the 2017 tax year; you can view the chart, with those thresholds broken out by age and filing status, here.
However, you don't always include Social Security benefits in your taxable income, and when you do, it's not always at 100%. Once you reach retirement age, whether your Social Security benefits are taxable depends on your filing status and how much other income you receive.
To calculate whether your Social Security benefits are taxable, you'll need your form SSA-1099 as well as any forms W-2, 1099, K-1 or other supporting documents related to your income for the year. You should have them handy since most were due to you by January 31: If you don't have yours yet, check here for what to do.
Sort through your documents and find your federal form SSA-1099 - that's the tax form which reports your total Social Security benefits.
- If your only source of income is your Social Security check, your benefits are generally not taxable. You may not even need to file a return (for more on whether you need to file, click here.)
- If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income (MAGI) is more than the base amount for your filing status. The quick and dirty version of the MAGI formula is to add one-half of the total Social Security benefits you received (that’s what is reported on the form SSA-1099) to all your other income, including any tax-exempt interest and other exclusions from income. Compare that total to the base amount for your filing status. If the total is more than the base amount for your filing status, some of your benefits may be taxable.
- Or, put another way, you will not be taxed on your benefits if: Your adjusted gross income + Nontaxable interest + ½ of your Social Security benefits < the base amount.
The base amounts are:
- $32,000 for married taxpayers filing jointly;
- $25,000 for taxpayers filing as single, head of household (HOH), qualifying widow/widower with a dependent child, or married filing separately who did not live with their spouses at any time during the year; and
- $0 for married persons filing separately who lived together during the year.
Here's a quick example. Let's say you're a single taxpayer with Social Security benefits in the amount of $15,600. Let's say you have $1,000 in dividends, $1,000 in taxable interest and $6,000 in other income. Your MAGI is: $15,800 = $7,800 (1/2 of SS benefits) + $8,000 (dividends, taxable interest and tax-exempt interest). Since that total is less than $25,000 (the base amount for your filing status), your Social Security benefits would not be taxable.
Here's another example: Let's say you're a single taxpayer with Social Security benefits in the amount of $20,000. Let's say you have $10,000 in dividends, $10,000 in taxable interest and $12,000 in other income. Your MAGI is: $42,000 = $10,000 (1/2 of SS benefits) + $32,000 (dividends, taxable interest and tax-exempt interest). Since that total is more than $25,000 (the base amount for your filing status), part of your Social Security benefits would be taxable.
If part of your Social Security benefits is taxable, how much is taxable depends on the total amount of your benefits and your other income. As a rule, the higher your total income, the higher percentage of your Social Security benefits subject to tax.
If you owe tax on your Social Security benefits, typically up to 50% of your benefits will be taxable. However, up to 85% of your benefits can be taxable if your MAGI is more than $34,000 ($44,000 if you are married filing jointly) or if you are married filing separately and lived with your spouse at any time during 2017. No one will pay federal income tax on more than 85% of their Social Security benefits. You can figure the amount using Worksheet 1, found in Pub 915 (downloads as a pdf).
When calculating whether benefits are taxable, only include those benefits that are legally yours. If you and your child receive benefits, but the check for your child is made out in your name, use only your part of the benefits to see whether you might owe tax. The benefits paid to the child (typically reported in box 3 on your 1099-SSA) must be added to your child's other income to see whether any of those benefits are taxable.
If you owe tax year after year because of your other income, you may wish to make some adjustments. You can make estimated payments or adjust your withholding. You can adjust your withholding by completing a form W-4 (2017 version downloads as pdf) and returning it to your local Social Security office by mail or in person (you can find the address here). In most cases, the Social Security Administration will not automatically withhold tax from your benefits if you are a U.S. citizen.
If none of your benefits are taxable, you may still need to file a tax return, depending on your circumstances. If that's the case, here's how to report your non-taxable benefits:
- If you are filing a form 1040EZ, do not report any Social Security benefits on your tax return.
- If you are filing a form form 1040A, report your net benefits (box 5 on your form 1099-SSA) on form 1040A, line 14a. Enter 0 on form 1040A, line 14b.
- If you are filing a form 1040, report your net benefits (box 5 on your form SSA-1099) on form 1040, line 20a. Enter 0 on form 1040, line 20b.
- If you are married filing separately and you lived apart from your spouse for all of 2017, write the letter "D" to the right of the word "benefits" on form 1040, line 20a or form 1040A, line 14a.
For more information, consult with your tax professional and check out IRS Pub 915 (downloads as a pdf).
