You may owe federal and state income taxes on SS retirement benefits.
tax love image by TEMISTOCLE LUCARELLI from Fotolia.com
People entering their retirement years count on Social Security retirement benefits as part of their retirement income stream. But your Social Security retirement benefits may be taxed by both the federal government and your state government. Federal taxation of Social Security will depend on how much income you made from other sources and your filing status. State taxation will depend on the state where you live. You can have federal income taxes withheld from your benefit or make quarterly payments.
If your only retirement income is your Social Security benefit, you won’t owe federal income tax on it. But if you have other substantial income from wages, self-employment, interest, dividends and taxable retirement plan distributions, you may owe federal income tax on
up to 85 percent of your Social Security retirement benefit. Under Internal Revenue Service rules, no one pays tax on more than 85 percent of their Social Security benefit.
Social Security retirement benefits are taxed based on your “combined” income. If you are single, your benefit won’t be taxed if combined income for 2012 is below $25,000. For incomes over $25,000 the amount of Social Security income that will be taxable starts at 50 percent, increasing gradually to a maximum of 85 percent for incomes over $34,000. For joint filers, benefits won’t be taxed if joint combined income is below $32,000. Between 50 percent and 84 percent is taxed for income between $32,000 and $44,000, and 85 percent is taxed when combined income exceeds $44,000. For married people filing separately, 85 percent of their Social Security benefit is taxed regardless of income.
Calculating Combined Income