Social Security is a lifeline for millions of retirees, yet not all of it is tax-free. Though most states don’t tax Social Security, many retirees have to pay tax on Social Security to the federal government. This is the reason why many Social Security beneficiaries start to fret when the tax season starts. Lack of information on the taxability of benefits is a major reason why beneficiaries consider calculating tax on their Social Security income an arduous task. To make things simpler, it is important for retirees to first determine whether or not their Social Security benefits are taxable. This article will discuss how to find out if your Social Security income is taxable.
Social Security recipients don’t have to file a tax return if the benefits are their primary source of income. However, if a beneficiary has other sources of income as well, it gets difficult to determine whether or not they will have to pay tax on their Social Security income. This is where the Social Security Benefit Statement comes into play.
In fact, one of the easiest ways to find out if your Social Security income is taxable is to scan your Social Security benefit statement. This statement comes in handy when you or a tax preparer files your taxes.
The Social Security Benefit Statement, officially called Form SSA-1099 (SSA-1042S for non-citizens living outside the US), shows the benefit amount you received last year. This statement offers beneficiaries details that they can use to file their federal tax return.
According to the Social Security Administration (SSA) website, it has been sending out this statement annually since 1999. SSI (Supplemental Security Income) recipients don’t get this statement.
The SSA sends the statement annually to taxpayers by mail. Alternatively, beneficiaries can access the statement through their “My Social Security” online account.
Those who don’t have a My Social Security account and don’t receive Social Security benefits, are mailed a paper Statement 3 months before their 60th birthday. Alternatively, a person can request the statement as well. The requested statement will arrive in about 4 to 6 weeks.
If you lost the SSA-1099 form sent by the SSA, you can get a replacement form. You can request the replacement form by visiting your My Social Security online account. Your online account will have a link saying, “Replace Your Tax Form SSA-1099/SSA-1042.”
What else does it include?
Along with helping you determine if your Social Security income is taxable, your Social Security Benefit Statement serves as an important financial planning tool to estimate your retirement income if you haven’t yet claimed the benefits. You can use this information to plan how much more money you will need to supplement your Social Security income.
Specifically, the Social Security Benefit Statement gives you an estimate of your retirement, disability and survivor benefits. In fact, the statement includes an estimate of the money you will receive if you claim Social Security at nine different retirement ages between 62 and 70.
Also, it shows your current, as well as past earnings. Moreover, it also gives an estimate of your spouse’s and dependents’ possible benefits if you die. It will also show whether or not you have worked long enough to qualify for Social Security benefits.
The statement also includes your Medicare qualification information, your income taxed for the purpose of Social Security, earnings not covered by Social Security, and links for more information.
Normally, a Social Security Benefit Statement runs into several pages. The first page gives an overview of the statement and links to other tools that can help you estimate or apply for Social Security benefits. The second and third page gives a breakdown of your estimated benefits for retirement, disability, family and survivors’ benefits and Medicare.
Note that the statement assumes no change in Social Security laws, and you continue to earn your current salary. Both of these (laws and your salary), however, could change in the future.
You can contact the SSA at 1-880-772-1213 for any questions regarding the Social Security Benefit Statement.
You know that your Social Security statement is immensely important as it not only helps you to find out if your Social Security income is taxable, but also serves as your financial planning tool. Thus, it is very important that you verify the details in the statement, including your name, Social Security number and earnings data.
Mistakes, if any, in the statement may delay or even reduce your benefits. If you find any error in the statement, the SSA recommends contacting the agency at 1-800-772-1213. You will have to prove to the agency that the statement is inaccurate using your W-2 form, Tax return, wage stub, pay slip or wage records.
The IRS uses a concept called “combined income” to determine the tax on your Social Security. Your combined income is the sum of your adjusted gross income (AGI), nontaxable interest and half of your Social Security benefits.
The IRS taxes up to 85% of your Social Security benefits if:
- You are an individual filer with a combined income of over $34,000.
- You are a joint filer with a combined income (you and your spouse) of more than $44,000.
The IRS taxes up to 50% of your Social Security benefits if:
- You are an individual filer with a combined income between $25,000 and $34,000.
- You are a joint filer with a combined income (you and your spous e) between $32,000 and $44,000.