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 filing 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 files 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 Internal Revenue Service (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, 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 2018, the maximum amount of taxable earnings is $128,70015 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 file 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%.16

MAXIMUM TAXABLE EARNINGS EACH YEAR

1937-1950 $3,000 1980 $25,900 1994 $60,600 2008 $102,000
1951-1954 $3,600 1981 $29,700 1995 $61,200 2009 $106,800
1955-1958 $4,200 1982 $32,400 1996 $62,700 2010 $106,800
1959-1965 $4,800 1983 $35,700 1997 $65,400 2011 $106,800
1966-1967 $6,600 1984 $37,800 1998 $68,400 2012 $110,100
1968-1971 $7,800 1985 $39,600 1999 $72,600 2013 $113,700
1972 $9,000 1986 $42,000 2000 $76,200 2014 $117,000
1973 $10,800 1987 $43,800 2001 $80,400 2015 $118,500
1974 $13,200 1988 $45,000 2002 $84,900 2016 $118,500
1975 $14,100 1989 $48,000 2003 $87,000 2017 $127,200
1976 $15,300 1990 $51,300 2004 $87,900 2018 $128,700
1977 $16,500 1991 $53,400 2005 $90,000 2019 $132,900
1978 $17,700 1992 $55,500 2006 $94,200
1979 $22,900 1993 $57,600 2007 $97,500

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 material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular investment, strategy, investment manager or account arrangement. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Please consult your legal, tax or investment advisor in order to determine whether an investment product or service is appropriate for your particular situation. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. The Dreyfus Corporation and MBSC Securities Corporation are companies of BNY Mellon. © 2018 MBSC Securities Corporation, 225 Liberty Street, 19th Floor, New York, NY 10281.

15 2019 Social Security Fact Sheet, Social Security Administration.

16 “If You Are Self-Employed, 2018,” Social Security Administration.

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