Many Americans are surprised to learn that they can be taxed on their Social Security retirement benefits as explained in My San Antonio's article: "Will I Pay Taxes on My Social Security Benefits?" People believe the money they receive was already taxed when they paid into the system.
As a result, to tax it again amounts to double taxation.
However, the federal government views it differently.
The total amount most people pay into the system equals 15% of the total value of lifetime benefits. As a result, up to 85% of Social Security benefits can be taxed and it will not be double taxation.
But not everyone is required to pay federal income taxes on their benefits. It depends on the other income a person makes.
The basic rules are as follows:
- Single people whose total incomes are between $25,000 and $34,000 may have 50% of their Social Security benefits taxed. A total of 85% of benefits may be taxed for people making more than $34,000.
- Married people filing jointly may have up to 50% of their benefits taxed if their combined income is between $32,000 and $44,000. Up to 85% of benefits could be taxed for couples with higher incomes.
- The government is direct when it comes to married people who file separately. They are almost certain to pay taxes on their Social Security benefits.
Additionally, in 13 states Social Security benefits are subject to state income taxes.
Remember: “An ounce of prevention is worth a pound of cure.” When making your estate plans or when probating an estate or administering a trust, do not go it alone. Be sure to engage a Cincinnati estate planning attorney.
For more information about estate planning, probate or trust administration in Cincinnati (and throughout the rest of Southwest Ohio) and to review free resources regarding estate planning, probate or trust administration, visit my website. If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526).
Reference: My San Antonio (March 20, 2016) "Will I Pay Taxes on My Social Security Benefits?"