This is the time of year that most of us hunker down waiting for the green sprigs of spring to arrive. However, with the warm weather only months away, another dreaded season also approaches: Tax Season.
If you want to finish your taxes early instead of putting them off until the last minute, then you are probably ready to get started and avoid the stressful rush of April 15, 2021. Being prepared to start taxes as a beneficiary of Social Security involves knowing how much of your benefits are considered income.
Why wait to find out what you’ll owe? It always pays to be prepared. Read on to learn how to calculate how much tax you will owe on your benefits.
North Carolina Guidelines for Benefit Taxes
The majority of states do not charge Social Security benefits taxes, including North Carolina. You do have to watch out for the taxes on retirement benefit distributions and pensions though. These are taxed in North Carolina if your adjusted gross income is more than:
- Single $10,750
- Married – Filing Joint Return $21,500
- Married – Filing Separate Return
- If spouse does not claim itemized deductions $10,750
- If spouse claims itemized deductions $0
- Head of Household $16,125
- Qualifying Widow(er)/Surviving Spouse $21,500
- Nonresident alien $0
IRS Guidelines For Benefit Taxes
According to the IRS, you have to pay income tax on some Social Security benefits. However, you are more likely to pay tax if you have other substantial income in addition to your benefits.
Income that can add up and cause you to owe taxes for your benefits include
- Wages
- Self-employment
- Interest
- Dividends
- Other taxable income that must be reported on your tax return
Calculate Your Income Tax on Social Security Benefits
The tax you owe for your Social Security benefits varies but can be estimated with a simple formula.
Find out approximately how much you will owe the Feds by taking half of your benefit amount and adding it to your adjusted gross income (including nontaxable interest). This number is your “combined income” for Social Security tax purposes.
Once you’ve calculated your “combined income” number, you will pay income tax on your Social Security benefits if you:
File as an Individual:
- And your “Combined Income” Calculation is $25,000 – $34,000
You will pay up to 50% income tax on your Social Security benefits
- And your “Combined Income” Calculation is more than $34,000
You will pay up to 85% income tax on your Social Security benefits
File Jointly:
- And your “Combined Income” Calculation is $32,000 – $44,000
You will pay up to 50% income tax on your Social Security benefits
- And your “Combined Income” Calculation is more than $44,000
You will pay up to 85% income tax on your Social Security benefits
If you are married and filing separately, you will likely have to pay taxes on your Social Security income.
How to Pay Differently
It can be difficult to save money each year for paying taxes only once per year. Not knowing how much you will have to pay means you don’t know how much to save.
If you don’t want to wait and pay only once per year, you can file quarterly estimated taxes or you can have the tax taken out before you receive the amount each month by having the Feds withhold your taxes from each benefit deposit. You can set up a schedule at ssa.gov.
Other Types of Social Security Benefits
The two most common Social Security benefits are for retired workers who worked in covered employment long enough or for the spouse (sometimes ex-spouse) of a retired worker who is at least 62 years old
However, there are many types of Social Security benefits that are paid in the event of other kinds of life events. These types of beneficiaries also receive benefits that could be taxed depending on income level:
- Child of retired or deceased worker who is a minor child (under age 18), an adult disabled before the age of 22, or a high school student under age 19
- Aged widow(er) at least 60 years old
- Young widow(er) who has a child under age 16 or a disabled child in his or her care
- Disabled widow(er)—must be disabled and at least 50 years old
- Parent of deceased worker who was dependent on worker and be at least 62 years old
- Disabled worker who worked in covered employment long enough to be insured
- Spouse of disabled worker who has a child under age 16 or a disabled child in his or her care or is least 62 years old (divorced spouse if the marriage lasted at least 10 years)
- Child of disabled worker who is a minor child (under age 18), an adult disabled before the age of 22, or a high school student under age 19
Types of Social Security Benefits that are NOT Taxed for You
If your child receives Social Security dependent or survivor benefits, those payments do not count toward your taxable income. The child is taxed independently from you if their income is enough to file their own return.
Another misconception is that SSI, Supplemental Security Income, is taxable. However it is only given to those whose incomes are lower than the threshold so it is never taxed.
Whether you receive social security benefits because you are retired, disabled, or raising the child of a qualified social security account holder, your benefits may be taxable depending on:
- Whether the check is made out to you or your child
- How much income you have
- How you file your taxes
Seek Counsel
If doing your taxes is confusing or stressful, seek out a knowledgeable tax attorney and make sure that you are up to date with any changes in the applicable tax laws. Having someone on your side as you work out the amounts you owe can give you peace of mind and the extra assurance that your tax documents are correct.
- https://smartasset.com/retirement/is-social-security-income-taxable
- https://www.ncdor.gov/taxes-forms/individual-income-tax/individual-income-filing-requirements#Filing
- https://www.aarp.org/retirement/social-security/questions-answers/how-is-ss-taxed.html
- https://www.ssa.gov/oact/progdata/types.html