I am getting more and more questions on the taxation of Social Security. One taxpayer who waited till 70 to collect has been hit with a huge tax bill because of the taxable amount of Social Security.
The federal taxation of Social Security benefits can be complex. Some individuals whose Social Security is their sole or primary source of income are not taxed on their benefits. However, many others may owe tax on up to 50% or 85% of their Social Security benefits, depending on their “provisional income.”
Provisional income generally includes tax-exempt interest, 50% of Social Security benefits, and other non-Social Security income. For single filers, benefits are tax-free if provisional income is under $25,000, partially taxable if between $25,000-$34,000, and up to 85% taxable if over $34,000. For joint filers, the thresholds are $32,000 and $44,000.
Taxpayers can request federal income tax withholding from their monthly Social Security benefits by completing IRS Form W-4V.
Overall, this revised version aims to provide a clearer, more concise, and better organized explanation of the rules around federal taxation of Social Security benefits.
Yes, I am aware that you were originally taxed on this income and that the government is literally just returning your money back to you, it is still taxable.