If, like nearly a quarter of all married couples and nearly half of all unmarried people, you rely on Social Security benefits for 90 percent or more of your retirement income, you probably won’t have to pay taxes on those benefits. That’s the good news, if surviving on an average check of $1,269 a month or just over $15,000 a year can be considered good news.
Some people do pay taxes on Social Security but those benefits aren’t taxable unless a modified measure of pre-tax income exceeds certain limits. That calculation looks like this:
Adjusted gross income (all other salary)
+ nontaxable interest
+ half of the Social Security benefit
= combined income
If a single individual’s combined income is more than $25,000 or a couple’s combined income is more than $32,000, Social Security benefits are taxable in the following way:
- Individuals with a combined income between $25,000 and $34,000 may have to pay income tax on up to 50 percent of Social Security benefits.
- Above the $34,000 mark, an individual may have to pay taxes on up to 85 percent of Social Security benefits.
Married, filing jointly
- Married couples who file a joint return and have a combined income between $32,000 and $44,000 may have to pay income tax on up to 50 percent of Social Security benefits.
- Above $44,000, they may have to pay taxes on up to 85 percent of their benefits.
Married, filing separately
- Those who are married and file a separate tax return while still living with their spouse, will probably pay taxes on Social Security benefits.
If you are interested in Larry Kotlikoff’s rant on the craziness of having the Social Security taxation not indexed to inflation, go here
If you need to begin withholding federal taxes from your Social Security benefits you can find instructions for doing so here
If instead, you want to minimalize your taxes, Money has a few suggestions but they mostly revolve around learning to live on a great deal less than most people wish but some plans including these from Kiplinger are more about timing . If you are looking at tax planning, make sure you have an advisor that understands Social Security benefits. Our Preferred Partners can help you plan around Social Security benefits.
This is what got me off on this Social Security tangent. But, what I thought about when I read this question had absolutely nothing to do with Social Security. What I thought was that these two people were concerned about the tax consequences of a late-life marriage when they should be thinking about all the other implications. If you’re considering a second marriage or a late-life marriage, please ask for our white paper on Second Marriages because there is a lot more to saying “I do” the second time around than just the impact of taxes to your bank account balance.