Managing your tax liability effectively during retirement is important, especially since up to 85% of Social Security benefits can be taxed depending on your income. So, how can you avoid the surprise of owing the IRS more than you expected when tax season arrives? While not required, choosing to have taxes withheld from your Social Security checks is an option.
Here's what else you need to know.
Related: Will Retirees Stop Paying Tax on Social Security Next Year?
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Taxes on Social Security
It's essential to plan if you know some of your Social Security benefits will be taxed. As a general rule, if Social Security is the only source of income, it might not be taxable. However, the IRS will likely tax some of your Social Security benefits if you have additional retirement income from pensions, another job, retirement account distributions, etc.
The amount of Social Security benefits subject to tax depends on an IRS formula. That formula is based on “combined income” and considers your adjusted gross income, nontaxable interest, and half of your Social Security benefits.
Generally, if your combined income (50% of your benefit plus any other earned income) exceeds $25,000/year filing individually or $32,000/year filing jointly, you may have to pay federal taxes on your benefits.
For more information, see Kiplinger’s guide: Calculating Taxes on Social Security Benefits.
Federal withholding tax from Social Security
As mentioned, one way to avoid tax surprises is to have federal income taxes withheld from your Social Security payments.
- To do this, complete IRS Form W-4V, Voluntary Withholding Request, and submit it to your local Social Security office.
- You can choose a withholding rate of 7%, 10%, 12%, or 22%.
- You can change or stop withholding by completing and submitting a new W-4V.
Note: Changes in your income, tax laws, and inflation-adjusted amounts such as the Social Security COLA, may necessitate withholding changes. Review your withholding elections periodically to determine the best withholding rate for you.
Estimated tax payments on Social Security income
If you prefer not to have taxes deducted from your monthly Social Security payments, you can make quarterly estimated tax payments to the IRS. That can help you avoid underpayment penalties since the U.S. tax system operates on a "pay-as-you-go" basis. That means the IRS expects you to pay a portion of your income as soon as you earn it.
- When paying estimated taxes, you usually make four equal payments and follow the IRS's yearly schedule.
- People also call estimated tax payments "quarterly" payments, even though the payments might not necessarily be three months apart or cover three months of income.
For more information, see Kiplinger’s report on estimated tax payment due dates for 2024.
Regardless of the method you choose, withholding tax from Social Security and making estimated tax payments help ensure you have paid sufficient tax. You want to avoid an underpayment penalty from the IRS when you file your income tax return. According to the IRS, estimated tax underpayment penalties depend on several factors, including the amount of underpayment, the period when the underpayment was due, and the interest rate for underpayments that the agency publishes each quarter.
To avoid underpayment penalties, you will want to either withhold or make estimated payments equal to 90% of your tax liability for the current year or generally 100% of your tax liability for the previous year.
States that tax Social Security in 2024
While federal taxes may apply to Social Security benefits, not all states tax them. It helps to remain aware of state tax laws and state tax changes to understand if Social Security benefits are subject to state income tax. Also, see Kiplinger’s report on states that still tax Social Security.
Taxes in retirement can be complex, especially for retirees with multiple income sources. Staying informed and consulting with a tax professional can provide personalized advice. That guidance might help you make informed decisions regarding your Social Security withholding and overall tax strategy.
Related
- How the IRS Taxes Retirement Income
- Calculating Taxes on Social Security
- States That Tax Social Security Benefits
- Taxes on Social Security: Five Things You Need to Know
FAQs
You will pay federal income taxes on your benefits if your combined income (50% of your benefit amount plus any other earned income) exceeds $25,000/year filing individually or $32,000/year filing jointly. You can pay the IRS directly or have taxes withheld from your payment.
How do I calculate how much of my Social Security benefits are taxable? ›
Single filers with a combined income of $25,000 to $34,000 must pay income taxes on up to 50% of their Social Security benefits. If your combined income is more than $34,000, you will pay taxes on up to 85% of your Social Security benefits. Do you need help figuring out your required minimum distributions?
How do I know if too much Social Security tax withheld? ›
Excess social security withholding occurs when Box 4 is more than 6.2% of Box 3 on your Form W-2 Wage and Tax Statement.
Will I always have to pay taxes on my Social Security? ›
One common misperception is that Social Security benefits are entirely tax-free. However, it has been the rule for many years that some portion — in some cases, up to 85% — of your Social Security benefits can be taxable, depending on your income.
At what age is Social Security no longer taxed? ›
Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.
How to determine how much federal tax to withhold from Social Security? ›
To do this, you must fill out Form W-4V and submit it to your local Social Security office. You can choose a withholding rate of 7%, 10%, 12%, or 22%. Withholding taxes from your Social Security payments is one way to cover your potential tax liability before Tax Day arrives.
How much of my income is taxed for Social Security? ›
The Social Security portion (OASDI) is 6.20% on earnings up to the applicable taxable maximum amount (see below). The Medicare portion (HI) is 1.45% on all earnings.
Does Social Security count as income? ›
You must pay taxes on up to 85% of your Social Security benefits if you file a: Federal tax return as an “individual” and your “combined income” exceeds $25,000. Joint return, and you and your spouse have “combined income” of more than $32,000.
Can I complete form w-4V online? ›
Your Clients Can Get a W-4V Online
To start, change, or stop federal income tax withholding from their Social Security benefits, your clients can sign and submit IRS form W-4V directly to their local Social Security office.
Can I get a tax refund if my only income is Social Security? ›
You would not be required to file a tax return. But you might want to file a return, because even though you are not required to pay taxes on your Social Security, you may be able to get a refund of any money withheld from your paycheck for taxes.
how to change tax withholding on social security. Sign in to your online account. Go to OPM Retirement Services Online · Click Federal Tax Withholdings in the menu to view, stop, or change your current federal ...
Should I have taxes withheld from my Social Security benefits? ›
As a general rule, if Social Security is the only source of income, it might not be taxable. However, the IRS will likely tax some of your Social Security benefits if you have additional retirement income from pensions, another job, retirement account distributions, etc.
Can I get a refund for Social Security tax withheld? ›
Your employer should adjust the excess for you. If the employer doesn't adjust the overcollection, you can use Form 843, Claim for Refund and Request for Abatement to claim a refund. Attach copies of your Forms W-2, Wage and Tax Statement for the year to Form 843.
What is the Social Security tax withholding maximum? ›
What Is the Social Security Tax Limit? You aren't required to pay the Social Security tax on any income beyond the Social Security wage base limit. In 2024, this limit rises to $168,600, up from the 2023 limit of $160,200. As a result, in 2024 you'll pay no more than $10,453 ($168,600 x 6.2%) in Social Security taxes.
How much can you make on Social Security without filing taxes? ›
If you are at least 65, unmarried, and receive $15,700 or more in nonexempt income in addition to your Social Security benefits, you typically need to file a federal income tax return (tax year 2023).
Why is Social Security taxed twice? ›
The Introduction of Taxes on Benefits
The rationalization for taxing Social Security benefits was based on how the program was funded. Employees paid in half of the payroll tax from after-tax dollars and employers paid in the other half (but could deduct that as a business expense).
How do I get the $16728 Social Security bonus? ›
Have you heard about the Social Security $16,728 yearly bonus? There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.
