Social Security benefits include monthly retirement, survivor, and disability benefits; they do not include Supplemental Security Income (SSI) payments, which are not taxable. Generally, you pay federal income taxes on your Social Security benefits only if you have other substantial income in addition to your benefits. Your income and filing status affect whether you must pay taxes on your Social Security. About 40 percent of people who get Social Security must pay income taxes on their benefits.
At the end of each year, the Social Security Administration sends a Form SSA-1099, Social Security Benefit Statement, showing the amount of benefits you received. Use this statement when you complete your federal income tax return to determine if you must pay taxes on your benefits.
Although you’re not required to have Social Security withhold federal taxes, you may find it easier than paying quarterly estimated tax payments.
An easy method of determining whether any of your benefits might be taxable is to take one-half of the Social Security money collected during the year and add it to your other income. Other income includes pensions, wages, self-employment, interest, dividends, capital gains, and any other taxable income that must be reported on your tax return. On the 1040 tax return, your “combined income” is the sum of your adjusted gross income, nontaxable interest, and half of your Social Security benefits.
Taxpayers Filing an Individual Federal Tax Return
- If your combined income (adjusted gross income + nontaxable interest + 1/2 of your Social Security benefits) is between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
- If it is more than $34,000, up to 85 percent of your benefits may be taxable.
Taxpayers Filing a Joint Federal Tax Return
- If you and your spouse have a combined income (adjusted gross income + nontaxable interest + 1/2 of your (and your spouse, if applicable) Social Security benefits) that is between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
- If it is more than $44,000, up to 85 percent of your benefits may be taxable.
Married Taxpayers Filing Separately
Up to 85% of social security benefits may be taxable if you are:
- A married taxpayer who lived apart from your spouse for all of 2022 with more than $34,000 income
- A married taxpayer who lived with your spouse at any time during 2022
Pensions from Work
If you get a pension from work for which you paid Social Security taxes, that pension won’t affect your Social Security benefits. However, if you get a retirement or disability pension from work not covered by Social Security, we may reduce your Social Security benefit. Work not covered by Social Security includes the federal civil service, some state or local government employment, or work in a foreign country.
Eleven states tax social security income, including Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont.
Retirement income is generally not taxed by other countries. As a U.S. citizen retiring abroad who receives Social Security, for instance, you may owe U.S. taxes on that income but may not be liable for tax in the country where you’re spending your retirement years.
If Social Security is your only income, your benefits may not be taxable, and you may not need to file a federal income tax return. However, if you receive income from other sources (either U.S. or country of retirement) as well, from a part-time job or self-employment, for example, you may have to pay U.S. taxes on some of your benefits – the same as if you were still living in the U.S.
You may also be required to report and pay taxes on any income earned in the country where you retired. Each country is different, so consult a local tax professional specializing in expatriate tax services.
Even if you retire abroad, you may still owe state taxes – unless you established residency in a state that does not tax retirement income, such as Florida, before you moved overseas. Another thing to remember is that some states honor the provisions of U.S. tax treaties, and some do not. Therefore, it is prudent to consult a tax professional before choosing a retirement location.
Help is Just a Phone Call Away
If you receive Social Security, a tax professional can help you determine if some – or all – of your benefits are taxable. If you have any questions or want more information about these tax topics, please contact us.