Social Security and You: tax basics

I get lots of questions from my readers about their potential tax liabilities with respect to their Social Security benefits. I rarely answer such questions because I’m not qualified to do so. I spent my entire career working for the Social Security Administration. The SSA’s job is to maintain earnings records for workers and then to pay monthly benefits based on those records. The SSA has nothing to do with the taxation of those benefits. That’s a job for the Internal Revenue Service. So I always tell my readers that if they have questions about the taxation of Social Security benefits, they need to talk to the IRS or to a good local tax adviser.

I do know enough to give people the basic facts about benefit taxation. So I can tell you, for example, that the majority of Social Security beneficiaries do not pay any taxes on their Social Security benefits. And that’s simply because their income does not exceed the tax threshold limits.

What are those limits? If you file an individual tax return, you will pay taxes on up to 50 percent of your Social Security benefits if your total taxable income exceeds $25,000. And if your income is $34,000 or more, you will pay taxes on up to 85 percent of your benefits.

If you file a joint tax return, you will pay taxes on up to 50 percent of your Social Security if your total income exceeds $32,000 or up to 85 percent if your combined income is $44,000 or more.

That’s it. That’s the extent of my knowledge of Social Security benefit taxation. Again, if you want more information, talk to the IRS or a tax adviser.

Q: I stopped working last year. I was planning to delay my benefits until age 66. But because of some health problems I’ve encountered, I recently applied for my Social Security to begin at age 63. One of the questions on the application asked about earnings. I have a small pension, but no earnings. So I put “zero” as my answer. But now I’m worried that I messed up. My 56-year-old wife is still working. We file a joint tax return. Should I have indicated her earnings on my Social Security application?

A: Only your earnings can potentially impact your eligibility for Social Security benefits. Your wife’s earnings are not an issue. So, the fact that your wife is working and that she has income and that you file a joint tax return has no bearing on your eligibility for Social Security retirement benefits.

Also, your pension income does not count as earnings for Social Security benefit payment purposes. So “zero” was the right answer in the earnings section of your application.

Back to homepage

Subscriber Login

Keep reading with a digital access subscription.

Subscribe now

I need to make one other point to you. If you haven’t done so already, you should consider filing for Social Security disability benefits. If your claim is approved, you would get a disability rate that is slightly higher than your reduced retirement benefit. If you were over age 66, no disability benefits would be payable. If you were under age 62, your disability rate would equal your full retirement age benefit. In your case, because you will get some reduced retirement benefits before your disability is processed, your ongoing disability rate will be reduced by about one half of one percent for each month you receive a retirement check before the disability checks kick in.

Q: I have been getting Social Security benefits since 2012. Each year since, I’ve had to pay taxes on my benefits. Despite my accountant’s recommendation not to do this, I’ve decided I prefer to have those taxes withheld from each of my Social Security checks. Do I set that up with the IRS or with Social Security?

A: Well, in a way, you deal with both agencies. Or to be more precise, you need to fill out an IRS form but then you turn that in to your local Social Security office.

The form is called W-4V (Voluntary Withholding Request). You can get it from the IRS. But I found a link at SSA’s website: www.socialsecurity.gov. Just type “taxation of benefits” in the search box and click on the first link called “Benefits Planner: Withholding Income Tax from your Social Security Benefits.” The link allows you to download the IRS form. You can ask to have 7 percent, 10 percent, 15 percent or 25 percent of your benefits withheld. You cannot ask to have a flat dollar-amount withheld.

Q: I am 62 and my husband is 66. We recently divorced following a 40-year marriage. He was a corporate executive and has made a six-figure income for most of his life. He insisted that I stay home and raise our kids and take care of the house. I did make a little bit of money selling cosmetics on the side. But outside of that and a few years of work before our marriage, I have had no income. I’m worried now about Social Security. He says he plans to work until at least age 70, so I can’t get any of his Social Security benefits until then. We filed a joint tax return all the years we were married. Doesn’t that mean that half of his income was put on my Social Security record?

A: No, I’m sorry, it doesn’t mean that. Except for self-employed people, how you file a tax return has nothing to do with how earnings are posted to your Social Security record and thus, has no bearing on your eventual Social Security benefit. And based on what you said about your meager cosmetic earnings and the jobs you had before your marriage, your own Social Security retirement benefit is going to be quite small. That’s the bad news.

But the good news is that you can get some of his Social Security even if he hasn’t filed for benefits. You can file for reduced divorced wife’s benefits now if you want. You’d get about one-third of his full retirement age rate. Or if you can wait until age 66 to file, then you’d get half his full benefit rate.

And just for future planning purposes, you should know that if he dies before you do, and assuming you are over age 66 when that happens, your widow’s rate will equal 100 percent of his full benefit, including any delayed retirement bonus he might get for waiting until age 70 to file.