Are There Taxes on Social Security for Seniors?9 minute read

9 minute read

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Updated for December, 2018

In the advent of the legislation passed by Congress in 1983, the full-retirement age set by social security has been increasing gradually. As a result, retirees aged 65 to 67 years get to enjoy social security benefits tax-free. In the past, the full retirement age was 65 with people, who preferred an early retirement, enjoying the benefits after attaining 62 years.

Social Security for Seniors

This discussion gives more insight on taxes on social security benefits for seniors.

The benefits are subject to a reduction as the retirees only receive 80% of the full amount of benefits. However, for retirees who are still working, a part of their benefit is subject to taxation. The IRS adds these earnings to half of your social security benefits; if the amount exceeds the set income limit, then the benefits are taxed. This discussion gives more insight on taxes on social security benefits for seniors.

It is a tax charged on the employer and the employee to fund the social security program. It is collected in the form of self-employment tax or payroll tax. Employers usually withhold the tax from the employee’s paycheck and remit it to the relevant government authority. This amount is used to pay retirees and people who have various disabilities. Social security tax is also used to support people who are entitled to survivorship benefits.

12.4%: Tax Rate Used by Employers in 2017

Employers used a rate of 12.4% in 2017, where the employee contributes half (i.e. 6.2% and the employer pays the other half). The tax is assessed on all types of income: wages, salaries, and bonuses with an income limit of $127,000. However, when it comes to self-employed people, the IRS regards them as both the employer and employee hence liable for the whole 12.4% social security tax.

As of 2017, retirees without spouses and have attained the required 65 years should file an income tax return if the gross earnings are more than $11,850.

Taxes on social security benefits are based on the retiree’s income. If social security benefits are the only source of income for the senior, then there is no need of filing a tax return. As of 2017, retirees without spouses and have attained the required 65 years should file an income tax return if the gross earnings are more than $11,850. Seniors living on social security benefits, however, should not include the amount in this gross income. If the benefits make up your entire income, then your gross income for tax computation is equal to zero.

Unmarried retirees who have additional incomes liable to tax should determine if the amount exceeds $11,950 for tax computation. Married retirees filing their return jointly, on the other hand, may have their social security benefits taxed if they are earning more than $23,000. If one of the spouses is below 65 years of age, then the threshold amount reduces to $ 22,050.

In some instances, retirees are required to include the social security benefits in their gross income. For example, a married retiree who files a separate tax return but lives with his spouse at any time during the year, then all his benefits are considered gross income that requires them to file taxes on social security benefits. Additionally, a portion of the benefits is included in the gross income irrespective of the retiree’s filing status, where the sum of half the social security benefits and other income (this includes tax-exempt interest) goes beyond $25,000 for unmarried seniors and $32,000 for married retirees. Note that benefits received as a result of disability are tax-free.

Additional incomes from other sources affect the taxable amount of your social security benefits. The amount ranges from 0–85% based on your combined income. The IRS calculates this figure by adding half of the annual social security benefit, any non-taxable interest, and the federal adjusted gross income. For the unmarried, the tax rate ranges from 1–50% of the benefit if their combined income lies between $25,000–$34,000 and $32,000–$44,000 for spouses filing their returns jointly. If the combined incomes exceed these set limits for both singles and those who are unmarried, the taxable portion of your benefit ranges between 51–85%.

Elderly couple discussing legal things

Are social security benefits for the disabled taxable?

Disabled people are not liable to pay state or local taxes on their social security disability benefits. However, if the other incomes and social security disability benefits exceed the income guidelines, then the individual should report the expected amount for federal tax purposes.

Retirees can make estimates for the tax payments throughout the year or ask the Social Security Administration to withhold the taxes from their monthly checks.

The state requires payments for taxes on social security benefits to be made on April 15. Retirees can make estimates for the tax payments throughout the year or ask the Social Security Administration (SSA) to withhold the taxes from their monthly checks. Seniors who choose the latter option should fill IRS Form W-4V to request the authorities to withhold their taxes or use the Voluntary Withholding Request form available online.

The Form Provides Four Options as to How You Want Your Money Withheld From Monthly Payments: 7%, 10%, 15% or 25%

The Social Security Administration sends a Social Security Statement (SSA-1099) each January, which details the actual amount you have received in the form of benefits the previous year. The SSA also provides retirees with the option to file returns for the benefits without receiving payments. This way you also get to accumulate delayed retirement credits, which increase once you start receiving the benefits. A senior, who attains the full retirement aged 66 or 67, can delay receiving payments until 70. As a result, they increase the benefits by 8% every year they delay the payments.

elderly couple planning life insurance

Seniors with incomes that exceed the set limit are liable to pay tax. However, they can reduce the taxable amount through tax credits for the elderly and disabled as long as they have reached 65 and income from other sources does not exceed the set limit. Tax credits are more helpful to people who owe tax to the IRS. You can also avoid taxes on social security benefits by postponing receipt of the benefits until you attain the full retirement age.

To sum up, we can say that seniors receive social security benefits tax-free. However, these benefits are usually subjected to some form of reduction because most retirees never receive 100% of their benefits. There is also an exception where an elderly person’s social security benefits may be taxed. If their incomes exceed a particular set limit, then their social security benefits are liable to taxation.