Tax Impacts on Social Security

Written By: Ryan Rinehart, Financial Advisor

In my career as a Financial Advisor, I’ve met with hundreds of families to discuss retirement planning and I would say the most common question or concern they have is taxes in retirement. There are a lot of moving pieces when it comes to taxes, especially for those of you who are retired. One big question I always hear from retirees is “How is my Social Security taxed?” So, in today’s blog I want to discuss this topic so that you can have a better understanding of the tax impacts you might see with your Social Security checks each month.

When it comes to Federal income taxes on your Social Security benefits, it’s important to understand what variables will impact the amount of taxes you will pay. Many retirees have to pay Federal income taxes on their Social Security due to having substantial income in addition to their monthly benefit. The most common examples of additional income we see are wages, distributions from retirement accounts, self-employment, interest, or dividends. (This list is not all-inclusive.)

However, there’s more to it than just whether or not you receive income. The amount of income you receive impacts what percentage of your social security benefits are taxed. Below I’ll outline a few scenarios of where you might fall.

If you:

File an individual federal tax return and your combined income (wages, distributions, et al. plus Social Security) is between $25,000 and $34,000 you may have to pay income tax on up to 50% of your benefits.
- Have income of over $34,000 then up to 85% of your benefits may be taxable.
File a joint return and you and your spouse have a combined income that is between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits.
- Earn more than $44,000 jointly then up to 85% of your benefits may be taxable.

To calculate your combined income, you would take:

Gross Adjusted Income + Nontaxable interest + ½ of your Social Security Benefits.¹

The breakdown above is a prime example of why having an efficient income plan can be so crucial when planning for retirement. You must factor in how each dollar of income can affect your Social Security tax situation. Give us a call at 844-Carlson if you’re needing more clarity on your Social Security benefit and how it may be impacting your Financial Plan.

Say What?

At age 81, Martha Stewart became the oldest swimsuit model featured on the cover of Sports Illustrated earlier this year. But move over Martha because the oldest cover star to appear on Vogue magazine? A 106-year-old Indigenous tattoo artist appeared on the cover of Vogue Philippines’ April Beauty Issue wearing beaded necklaces and showing off her many intricate tattoos.

This week in history

1932 – The first federal gasoline tax was created with the enactment of the Revenue Act of 1932 with a tax of one cent per gallon.

1943 (80 years ago) – New laws are passed which require employers to withhold federal taxes from weekly paychecks. This changed the earlier format where taxes were paid in one lump sum at the end of each year, and the change has been called the “pay as you go tax.”

1944 (June 6) – Dwight D. Eisenhower, commander of the Allied Forces, gives the go-ahead for a massive invasion of Europe called Operation Overlord/D-Day. A million Allied troops landed on the beaches of Normandy in northern France, which resulted in the Allied liberation of Western Europe from Nazi Germany’s control.

1987 – On June 12, 1987, President Ronald Reagan made one of his most famous Cold War speeches, challenging Soviet leader Mikhail Gorbachev to take down the Berlin Wall.