Social Security Tax Facts You Need To Know (www.futurityfirst.com)

socialsecuritytax

The Social Security Act has established numerous programs which provide supplemental income for insured individuals and their families in the event of disability, when they retire, or at death. This supplemental income acts as a safety net — especially in old age — and keeps an estimated 43 percent of elderly American out of the poverty.

Congress passed the Social Security Act in 1935 and the retirement benefits program went into effect on January 1, 1937. The law has been amended many times since its original enactment.

With all these amendments, the taxation policy is complex for employers and individuals alike. Keep reading to find answers to 20 questions that are likely top of mind as your clients navigate tax season.

1. Are Social Security benefits subject to federal income taxation? 

Social Security retirement, survivor, and disability benefits may be subject to federal income taxes in some cases. The person who has the legal right to receive the benefits must determine if the benefits are taxable. For example, if a parent and child both receive benefits, but the payment for the child is made to the parent’s account, the parent must use only the parent’s portion of the benefits in figuring if benefits are taxable. The portion of the benefits that belongs to the child must be added to the child’s other income to see if any of those benefits are taxable.

If the only income a person receives is Social Security benefits, the benefits generally are not taxable and he probably does not need to file a tax return. However, if a person has other income in addition to benefits, he may have to file a return (even if none of the benefits are taxable).

If the total of a person’s income plus half of his or her benefits is more than the base amount, some of the benefits are taxable. Included in the person’s total income is any tax-exempt interest income, excludable interest from United States savings bonds, and excludable income earned in a foreign country, United States possession, or Puerto Rico. 

Voluntary federal income tax withholding is allowed on Social Security benefits. Recipients may submit a Form W-4V if they want federal income tax withheld from their benefits. Beneficiaries are able to choose withholding at 7 percent, 10 percent, 15 percent, or 25 percent of their total benefit payment.

2. What are the base amounts? 

The base amount is as follows, depending upon a person’s filing status:[1]

  • $32,000 for married couples filing jointly
  • $0 for married couples filing separately and who lived together at any time during the year
  • $25,000 for other taxpayers

If a person is married and files a joint return, the person and his spouse must combine their incomes and their Social Security benefits when figuring if any of their combined benefits are taxable. Even if the spouse did not receive any benefits, the person must add the spouse’s income to his when figuring if any of his benefits are taxable.

Example. Jim and Julie Smith are filing a joint return for 2013 and both received Social Security benefits during the year. Jim received net benefits of $6,600, while Julie received net benefits of $2,400. Jim also received a taxable pension of $10,000 and interest income of $500. Jim did not have any tax-exempt interest income. Jim and Julie’s Social Security benefits are not taxable for 2013 because the sum of their income ($10,500) and one-half of their benefits ($9,000 ÷ 2 = $4,500) is not more than their base amount ($32,000).

Any repayment of Social Security benefits a person made during the year must be subtracted from the gross benefits received. It does not matter whether the repayment was for a benefit the person received in that year or in an earlier year.

3. What portion of Social Security benefits are subject to income taxes?

The amount of benefits to be included in taxable income depends on the person’s total income plus half his or her Social Security benefits. The higher the total, the more benefits a person must include in taxable income. Depending upon a person’s income, he or she may be required to include either up to 50 percent or up to 85 percent of benefits in income.

50 Percent Taxable

If a person’s income plus half of his Social Security benefits is more than the following base amount for his filing status, up to 50 percent of his or her benefits will be included in his or her gross income:[1]

  • $32,000 for married couples filing jointly
  • $0 for married couples filing separately and who lived together at any time during the year
  • $25,000 for all other taxpayers


85 Percent Taxable

If a person’s income plus half of his or her Social Security benefits is more than the following adjusted base amountfor his or her filing status, up to 85 percent of his or her benefits will be included in his or her gross income:[2]

  • $44,000 for married couples filing jointly
  • $0 for married couples filing separately and who lived together at any time during the year
  • $34,000 for other taxpayers

If a person is married filing separately and lived with his or her spouse at any time during the year, up to 85 percent of his or her benefits will be included in his or her gross income.

Stenken, Joseph. “20 Social Security Tax Facts You Need to Know.” Web log post. LifeHealthPro. N.p., 7 Apr. 2015. Web. 20 Apr. 2015.

FFIG grow your practice

For more information, contact our Recruiting Manager Allie Vossoughi at allievossoughi@ffig.com & 602-314-7580, or Thomas Shultz, Managing Director  at thomasshultz@ffig.com & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at nancymonaco@ffig.com & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at thomasbugbee@ffig.com & 602-314-7580.

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Thomas Bugbee

Futurity First Insurance Group

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