Social Security benefits are non-taxable or partially taxable, depending on how much extra income you are generating from other sources.
If Social Security is Your Only Source of Income"If the only income you received during the tax year was your social security or equivalent railroad retirement benefits, your benefits are probably not taxable and you probably will not have to file a tax return," according to the IRS, Tax Topics 423.
If You Have Other Income Besides Social Security BenefitsIf a person has other sources of income for the year besides Social Security benefits, then a portion of Social Security benefits might become taxable.
Use the "Social Security Benefits Worksheet" in the Instructions for Form 1040 (PDF), page 29 of the 2012 edition of the instruction booklet, to calculate your taxable amount.
When working through the worksheet, you'll figure your provisional income and compare that to the base amounts.
Provisional income is your total worldwide income, including tax-exempt income, plus half of your Social Security benefits.
The following base amounts are used in figuring your taxable Social Security:
Filing Status Base Additional* Married couples who file separate tax returns have two different methods for computing the taxable portion of their Social Security benefits:
Single $25,000 $34,000
Head of Household $25,000 $34,000
Married Filing Jointly $32,000 $44,000
Married Filing Separately $0*
Qualifying Widow(er) $25,000 $34,000
1. For married couples who lived in the same household at any time during the year, their base amount is zero. Up to 85% of their benefits will be subject to tax.
2. For married couple who lived apart from each other for the entire year, they can use a base amount of $25,000 and the additional income amount of $34,000 for computing the taxable portion of their benefits.
Finding the Taxable Amount of Your Social Security BenefitsIf your provisional income is below the base amounts for your filing status, then your Social Security benefits are completely non-taxable.
If you provisional income is between the base amount and the additional amount, then half of your Social Security benefits over the base amount are taxable.
If your provisional income is over the additional amount, then $4,500 (or $6,000 if Married Filing Jointly) plus 85% of your Social Security benefits over the additional amount are taxable.
The taxable portion of your Social Security benefits cannot exceed 85% of your total benefits.
Withholding on Social Security BenefitsTaxpayers may choose to have federal income tax withheld from their Social Security benefits. Federal income tax can be withheld at a rate of 7%, 10%, 15%, or 25%. Use Form W-4V (PDF) to let the Social Security Administration know how much tax you would like to have withheld.
- Social Security and Equivalent Railroad Retirement Benefits (Tax Topic 423)
- Social Security and Equivalent Railroad Retirement Benefits (Publication 915)
- Social Security and Equivalent Railroad Retirement Benefits (from Publication 17)
- Benefits Planner: Withholding Income Tax From Your Social Security Benefits (SSA.gov)
- JK Lasser's Your Income Tax, Chapter 34, providing useful information on Social Security and tax planning tips for senior citizens.