The IRS (Internal Revenue Service of the United States) is responsible for administering Social Security benefits taxes. Many Social Security beneficiaries are unaware of how the agency oversees the taxation of their monthly payouts. Understanding how the IRS handles taxes on this income can help you avoid surprises at tax time.
It is critical to remember that while Social Security benefits provide a significant source of income for millions of Americans, they are not always tax-free. Depending on your total annual income, the IRS may compel you to pay taxes on some of the benefits you receive. It is critical to understand what elements determine whether or not your benefits are taxable.
This article will explain how the IRS handles Social Security benefits and what you should do to remain on top of your tax obligations. In addition, we will go over how to manage these payments and what options are available if you are a Social Security beneficiary.
When do you have to pay taxes on your Social Security benefits?
The IRS does not tax all Social Security benefits. However, if your income is high enough, some payments may be subject to tax. This is often determined by your whole annual revenue. To assess if you should pay taxes on your benefits, the IRS utilizes a system known as “modified adjusted gross income” (MAGI).
Let’s take a closer look at how this system works:
- If you are an individual and your combined income (including Social Security and other income) is less than $25,000, your benefits will not be subject to tax.
- For married couples filing jointly, if their combined income is less than $32,000, no taxes are levied on benefits.
- If your income exceeds these thresholds, the IRS can tax up to 85% of your Social Security benefits.
So, if you haven’t already sent your tax return to the IRS, make sure to include all of this information when you do.
Avoid problems with the IRS and when you get your Social Security
Keeping track of supplementary income is crucial for avoiding IRS issues when collecting Social Security checks. If you receive additional income from work, interest, or dividends, it may jeopardize your tax exemption for Social Security benefits. Here are some suggestions to avoid surprises:
- Consult a professional: If you are not sure how your income could affect your Social Security taxes, consider talking to a tax attorney.
- Adjust your withholdings: You can choose to have Social Security withhold taxes directly from your benefits to avoid having to make a large payment at the end of the year.
- Stay informed at all times: Review your tax return annually and assess whether you need to adjust your tax strategy.
This proactive approach, which begins when you start collecting your retirement income, can help you keep adequate control over your tax obligations and avoid surprises during tax season. Nobody wants to deal with the IRS, especially when things aren’t going so well financially.
