Personal Retirement

Taxation of Social Security Retirement Benefits

Taxation of Social Security Retirement Benefits

Federal Taxation of Social Security Benefits

Some individuals may have to pay federal income taxes on Social Security benefits. This generally applies only if they have other substantial income such as wages, self-employment income, interest, dividends and other taxable income that must be reported on their federal income tax returns. Based on current tax rules, no one pays federal income tax on more than 85% of his or her Social Security benefits.

A single individual who files a federal tax return and has “combined income” between $25,000 and $34,000 may have to pay federal income tax on 50% of his or her Social Security benefits. Whereas another individual with the same tax ling status who has combined income in excess of $34,000 may be taxed on up to 85% of his or her Social Security benefits.

If a couple files a joint return and has a combined income between $32,000 and $44,000, they may have to pay federal income tax on 50% of their combined Social Security benefits. A joint filer who has more than $44,000 in combined income may be taxed on up to 85% of the combined Social Security benefits.

A married individual who les a separate tax return likely will pay federal income taxes on his or her Social Security benefits.

If an individual does have to pay taxes on his or her Social Security benefits, he or she can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from his or her benefits.

“Combined income” is the total of adjusted gross income, nontaxable interest and 50% of Social Security benefits. If you believe your Social Security benefits may be taxed, you should consult a tax advisor.

Based on current tax rules, no one pays federal income tax on more than 85% of his or her Social Security benefits.

Single vs. Joint Tax Return

For more information, refer to Publication 915 on the Internal Revenue Service (IRS) website.

 

Individual State Taxation of Social Security Benefits

You may be considering relocating closer to your children and grandchildren or seeking a warm oasis in retirement. Your Social Security benefits may be subject to state taxes depending on your location.

The following U.S. states tax Social Security benefits: Colorado, Connecticut, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia.

(U.S. citizens residing abroad in certain countries may be exempt from U.S. tax on their Social Security benefits.)

Individual State Taxation

For more information, refer to Publication 915 on the Internal Revenue Service (IRS) website.

Federal Insurance Contributions Act (FICA)

The law requires employers to withhold taxes from employee earnings to fund Social Security and Medicare programs. Your employer also pays a tax equal to the amount withheld from employee earnings. Individuals who are self-employed pay Self-Employed Contributions Act (SECA) taxes on net earnings.

Federal Insurance Contributions Act

Sources: State tax departments, CCH, the Tax Foundation, Kiplinger, the American Hotel & Lodging Association and the Distilled Spirits Council of the United States.

Maximum Amount of Taxable Earnings

For 2017, the maximum amount of taxable earnings is $127,200.14 This is also known as the taxable wage base.

You may claim a refund of any excess Social Security taxes withheld from higher earnings when you le your personal income tax return with the IRS. Although Social Security taxes are capped at the taxable wage base, Medicare taxes apply to all earnings.

Earned income exceeding $200,000 (or $250,000 for married couples filing jointly) is subject to an additional .09% in Medicare taxes equaling 13.3%.15

MAXIMUM TAXABLE EARNINGS EACH YEAR

1937-1950 $3,000 1979 $22,900 1992 $55,500 2005 $90,000
1951-1954 $3,600 1980 $25,900 1993 $57,600 2006 $94,200
1955-1958 $4,200 1981 $29,700 1994 $60,600 2007 $97,500
1959-1965 $4,800 1982 $32,400 1995 $61,200 2008 $102,000
1966-1967 $6,600 1983 $35,700 1996 $62,700 2009 $106,800
1968-1971 $7,800 1984 $37,800 1997 $65,400 2010 $106,800
1972 $9,000 1985 $39,600 1998 $68,400 2011 $106,800
1973 $10,800 1986 $42,000 1999 $72,600 2012 $110,100
1974 $13,200 1987 $43,800 2000 $76,200 2013 $113,700
1975 $14,100 1988 $45,000 2001 $80,400 2014 $117,000
1976 $15,300 1989 $48,000 2002 $84,900 2015 $118,500
1977 $16,500 1990 $51,300 2003 $87,000 2016 $118,500
1978 $17,700 1991 $53,400 2004 $87,900 2017 $127,200

Self-Employment:
Paying Social Security and Medicare Taxes

You are self-employed if you operate a trade, business or profession either by yourself or as a partner. You must report your earnings for Social Security when filing your federal income tax return.

This webpage is provided for informational purposes only and is not provided as a sales or advertising communication nor does it constitute tax, legal or investment advice or a recommendation for any particular investment product or strategy for any particular investor. This webpage does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. This material (or any portion thereof) may not be copied or distributed without The Bank of New York Mellon and all its affiliates’ prior written approval. Statements are current as of the date of the material only.

14 "2017 Social Security Fact Sheet,” Social Security Administration.

15 "If You Are Self-Employed, 2016,” Social Security Administration.

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