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Monday, December 4, 2023

Do you pay taxes on Social Security benefits?

We’re well into 2023 now, and that means tax filing day (April 18) is quickly approaching. If you’re like many Americans, you’re probably preparing to file your returns and anxiously awaiting that tax refund.

Unfortunately, many taxpayers could see smaller refunds this year thanks to recent tax changes. If you’ve recently started getting Social Security benefits, that could also influence your tax burden, not to mention the refund you’re eligible to receive.

Did you receive Social Security benefits in 2022? Then there’s important information you should know about filing your returns. You can get your taxes done right – and receive a maximum refund – by clicking here now.

Who does (and doesn’t) pay taxes on Social Security?

Whether you’ll pay federal taxes on Social Security depends on your tax filing status and your “combined income.” This is any tax-exempt interest you earned throughout the year, plus half your Social Security benefits and your adjusted gross income.

What does gross income include, exactly?

“Some examples include wages, self-employment income, interest, dividends, and other taxable income,” says Danielle Grimes, principal at accounting firm PKF O’Connor Davies.

Once you add up all these numbers, the rest depends on the total and how you file taxes. See the chart below for more guidance:

Tax Filing Status

Combined Income

Amount Taxed

Individual

< $25,000

No taxes

Individual

$25,000-$34,000

50% of your SS benefits

Individual

> $34,000

85% of your SS benefits

Married, filing jointly

< $32,000

No taxes

Married, filing jointly

$32,000-$44,000

50% of your SS benefits

Married, filing jointly

> $44,000

85% of your SS benefits

According to the Tax Foundation, there are also 13 states that tax Social Security benefits to some extent. Talk to an accountant and see if your state taxes Social Security — and what it might mean for your tax bill if it does.

You can file your 2022 taxes in less than 15 minutes online today.

What you’ll pay — and how to reduce it

Social Security benefits — at least the portion that’s taxable as determined above — are taxed based on your base Federal income tax rate. These rates range from 10% to 37%, depending on your filing status and total taxable income.

These tax rates often change annually, but here’s what they look like for tax year 2022:

Tax Filing Status

Taxable Income

Tax Rate

Individual

$10,275 or less

10%

Individual

$10,276-$41,775

12%

Individual

$41,776-$89,075

22%

Individual

$89,076-$170,050

24%

Individual

$171,050-$215,950

32%

Individual

$215,951-$539,900

35%

Individual

$539,901 and up

37%

Married, filing jointly

$20,550 or less

10%

Married, filing jointly

$20,551-$83,550

12%

Married, filing jointly

$83,551-$178,150

22%

Married, filing jointly

$178,151-$340,100

24%

Married, filing jointly

$340,101-$431,900

32%

Married, filing jointly

$431,901-$647,850

35%

Married, filing jointly

$647,851 and up

37%

If you want to minimize your tax burden, you’ll need to monitor your income and make efforts to stay under the lowest thresholds listed above.

To start, you can be mindful of the types of retirement accounts you contribute to and take distributions from. Roth accounts, for example, are taxable upon funding — not withdrawal, so these can help reduce your taxable income come tax season.

If you take required minimum distributions from your retirement accounts — which happens at age 72 in most cases — you can consider donating all or a portion of them to charity. This is called a “qualified charitable deduction,” which allows you to exclude those distributions from your income.

If you have investments, there are other options you can explore, too.

“Look for opportunities to reduce investment income by tax loss harvesting to offset investment gains,” says Julia Vanzler, a certified financial planner and private wealth advisor at SVB Private. “Additionally, $3,000 per year of investment losses can be used to offset ordinary income to bring down your adjusted gross income.”

Business owners can also be strategic about their purchasing and invoice patterns, particularly as they get closer to the end of the year. “If you have a small, cash-basis business, you may reduce your income by increasing business expenses in December or delaying invoicing for work completed in December,” says Marla Chambers, senior financial planner at Buckingham Advisors.

Explore your tax options and get start filing your 2022 return with TurboTax today!

Consult a professional

If you’re not sure about the taxes you’ll owe on your Social Security benefits, consult with a tax professional in your area. If they expect your Social Security benefits will increase your tax burden significantly, you might consider setting up a withholding from your Social Security checks. This will allow you to set aside funds for your taxes and “help spread the tax burden throughout the year,” as Grimes puts it.

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