Are Federal Taxes Taken Out of Social Security Benefits?

by Gregory Hamel, studioD

Although the Social Security system is funded with federal taxes, some benefit recipients must still pay federal taxes on a portion of their Social Security income. The income tax rate on Social Security benefits depends on the recipient's annual income and tax filing status. Taxes aren't taken out of benefits automatically unless the recipient anticipates a federal tax obligation and sets up voluntary tax withholding.

Individual Filers

The amount of federal income tax owed on your Social Security benefits depends on your "combined income" during retirement. Combined income is equal to your adjusted gross income plus your nontaxable interest income and one-half of your Social Security benefits. If your combined income is between $25,000 and $34,000 and you are a single taxpayer or the head of a household, you generally pay tax on 50 percent of your benefits.

Married Filers

Married couples filing joint returns face slightly higher combined income limits than individual taxpayers regarding the taxation of Social Security benefits. Joint filers with a combined income between $32,000 and $44,000 pay taxes on 50 percent of benefits. As a joint filer, up to 85 percent of benefits are taxable if income exceeds $44,000. Married individuals filing separate returns generally pay income tax on Social Security benefits regardless of their income level.

Calculating the Percentage

The exact percentage of tax you pay on Social Security benefits varies depending on your income sources and tax deductions. The Internal Revenue Service provides a worksheet in the instructions for Form 1040 to calculate the percentage of tax owed on benefits. Taxable interest, dividends, wages, capital gains, pension income, and retirement account distributions are included in your combined income. For high-income individuals, such as people making over $100,000 a year from their combined retirement assets, the maximum 85 percent of Social Security benefits are taxable.

Payment Methods

The federal income tax is a pay-as-you-go tax, meaning it must be paid during the year as you earn income. If you receive taxable Social Security benefits, you can pay taxes on your benefits through tax withholding or by making quarterly estimated tax payments. You can set up tax withholding on Social Security benefits by filling out Form W-4V and returning it to your local Social Security office. You can submit estimated tax payments to the Internal Revenue Service through the mail or online using the Electronic Federal Tax Payment System.

About the Author

Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.

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