Are Social Security Benefits Taxable?
How Much Other Income You Have Can Affect What you Owe
Normally, Social Security benefits that you receive are not taxable. However, that will depend on your total income – the higher the income, the more taxes you’ll have to pay on your benefits.
If you file as an individual and your combined income is below $25,000, your benefits won’t be taxed at all. Although up to 50 percent of your benefits may be subject to tax if your income is between $25,000 and $32,000. And, up to 85 percent of your benefits may be considered taxable income if your income is more than $32,000. In other words, if you are drawing your social security benefits and working, the additional income from working could cause a portion of your benefits to be taxed.
Keep in mind that the same issue could occur if you withdraw from an IRA or other retirement plan since additional IRA withdraws would have the same effect as income from working. As an example – you withdraw funds to pay for a new car and take a large withdrawal from your IRA account to pay for the vehicle. That extra IRA distribution could cause more of your benefits to be taxable.
In other words, whether you are currently working and about to receive Social Security benefits, already receiving benefits and planning on returning to work, or are planning to take a large IRA distribution, the tax implications can be quite substantial.
If you require assistance in planning for a potential tax liability created from working, drawing Social Security or taking IRA distributions, please give us a call so we can help you make the right decision.