Social Security benefits are federally taxed at three different tiers. The amounts depend on your income, marriage status and whether you file jointly or separately. Paying less in taxes can come down to how much money you pull out of your retirement accounts in a given year. Watch this video for tips on how to pay less in taxes on your Social Security benefits. For access to live and exclusive video from CNBC subscribe to CNBC PRO: [ Ссылка ]
Taxes are a certainty of life, including when it comes to your Social Security benefits.
If you receive monthly benefit checks, it is very likely that income is taxed. In fact, a majority of people receiving Social Security benefits pay income tax on some of those earnings.
But if you are not using strategies to manage your income, you could be increasing that tax bill. And that could mean less retirement income down the road.
William Meyer, founder of Social Security Solutions, a provider of benefits-claiming software, estimates that, on average, you can find up to seven years’ worth of more money by creating tax-efficient withdrawal strategies that coordinate Social Security benefits.
And those savings can be as much as hundreds of thousands of dollars, according to Meyer.
“It adds up to a lot of money for most people,” Meyer said. “It doesn’t matter if you have a lot of money or a little.
“That savings can be substantial.”
Approximately 40% of people who receive Social Security benefits pay federal income taxes on that income, according to the Social Security Administration.
If your income is low enough, none of your Social Security income may be taxed. But there are two additional tax tiers, which means that either 50% or 85% of your benefits could be subject to federal tax.
In order to know where you fall, you need to know your “provisional,” or combined, income.
To calculate that, add your adjusted gross income plus non-taxable interest plus half of your Social Security benefits. Those values can be found on your 1040 tax form.
If you file as an individual, you are subject to taxes on up to 50% of your Social Security benefits if your combined income is between $25,000 and $34,000. But if you’re over $34,000 in combined income, up to 85% of your benefits are subject to income taxes.
If you’re married and filing jointly, those thresholds for combined income are higher. You will be subject to taxes on up to 50% of your benefits if your income is between $32,000 and $44,000. That goes up to up to 85% of your benefits if your income is more than $44,000.
And if you’re married and filing separately, you could also pay taxes to the tune of up to 85% of your Social Security income. That’s what Joe Elsasser, president and CEO of Covisum, a Social Security claiming software company, calls a “gotcha” for those taxpayers.
Many people find out whether they owe federal income taxes on their Social Security income at tax time when they tally their Social Security benefit statement and other income.
Of note, you may also face state taxes on your Social Security income, depending on where you live. Most states do not impose levies on these benefits. But 13 states do, though the rules for that vary from state to state. Those states are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia.
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