Washington, DC - Social Security Matters by AMAC’s Certified Social Security Advisor C.J. Miles via the Association of Mature American Citizens:
QUESTION: Some people say you don't owe taxes on Social Security benefits, some people say you only owe a little, and some say you owe a lot. I don't know who to believe and I just don't want to be blind-sided. Can you help?
ANSWER: There is a possibility that you will owe federal income tax on your Social Security benefits - they can tax anywhere between 0% and 85% of your total annual benefit. Typically the amount of your benefit that is taxed (if any) has a lot to do with how much other income you have because the IRS looks at your "combined income" for the year. The Social Security Administration (SSA) defines "combined income" as your Modified Adjusted Gross Income (MAGI) + 1/2 your Social Security benefit. (MAGI is equal to your Adjusted Gross Income + non-taxable interest income). You should have received a 1099 from the SSA that tells you how much you received in Social Security benefits for 2014. So to determine your combined income, add half of that amount to your MAGI. How much of your benefit is taxed is not only based on your combined income, but also your marital status. Therefore, you can get a general idea of whether or not you will owe federal income tax on your Social Security benefits based on the following:
You will probably not owe income tax on your Social Security benefits if:
a) You are single and file an individual tax return, and your "combined income" is under $25,000.
b) You are married and file jointly, and your "combined income" is less than $32,000.
You will probably owe income tax on up to 50% of your Social Security benefits if:
a) You are single and file an individual tax return, and your "combined income" is between $25,000 and $34,000
b) You are married and file jointly, and your "combined income" is between $32,000 and $44,000.
If your combined income is more than the above amounts, you will likely owe income tax on between 50% and 85% of your Social Security benefits. If you are married and file separately, you will probably pay income taxes on some portion of your benefits. Note that under no circumstances will someone pay income tax on more than 85% of their benefit.
QUESTION: I am kicking myself because I filed my income taxes for 2014 and owed a lot of money. I'm thinking that it might help me budget for next year if Social Security were to just withhold income tax from my benefit, but they've never done that before. Is that even an option? If it is, how do I get them to do it?
ANSWER: Actually, you can have income tax withheld from your benefit - all you have to do is make a request. You need to fill out the form W-4V, which is similar to a W-4 that you would fill out for an employer ("V" stands for "Voluntary" because you do not have to have taxes withheld from your benefit). It is a very short, simple form that Social Security supplies on their website. The major difference between a W-4 and a W-4V is that the W-4V asks how much you want taken out of your benefit. You are allowed to choose from 7%, 10%, 15%, or 25% of your benefit amount, but you cannot choose a dollar amount or a different percentage not listed.
If at any time you want to either change the percentage or stop the withholding altogether, you fill out the same form and simply check a different box.