Do you know when you retire you may be paying taxes on your Social Security income? And yes, you already paid taxes on that income. It’s double taxation. (Our friends in Boston that had a bit of a tea party would love this one.)
Not everyone pays though. Only high income earners. – When you retire will you be a high income earner? – Don’t think so? I suggest you take another look. The government says “This usually happens only if you have other substantial income (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return) in addition to your benefits.”
And, they try to soften the blow by saying “No one pays federal income tax on more than 85 percent of his or her Social Security benefits based on Internal Revenue Service (IRS) rules.”
Who pays? You do, if you
- file a federal tax return as an “individual” and your combined income* is
- between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
- more than $34,000, up to 85 percent 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 percent of your benefits
- more than $44,000, up to 85 percent of your benefits may be taxable.
- are married and file a separate tax return, you probably will pay taxes on your benefits.
Note: Your adjusted gross income + nontaxable interest + ½ of your Social Security benefits = your “combined income”
And the income levels mentioned above are not adjusted for inflation.
Clients and followers of Employee Benefit Advisors know that despite being well versed in investing and retirement planning we do not dabble in retirement benefits. Our practice is strictly Health & Welfare. We decided to blog bout this issue because every time this topic comes up people are stunned.
Do you want to change this law? Write the AARP. How did they let this get through and why are they not addressing this issue?
Employee Benefit Advisors provides employee benefits, tax-advantaged healthcare, compliance guidance for ACA and Health & Welfare DOL Audits, and PEO Advisory & Consulting Services. We can customize a wellness plan for your budget and culture.