Q & A
I have to pay taxes on my Social Security benefits…are there any deductions I can take advantage of?
Complete Question: It’s that dreaded time of year again and it just irks me that I have to pay taxes on my Social Security benefits. It’s obvious to me that I will owe something because I get Social Security and I do some part-time IT consulting, which makes my total income over the threshold. I really don’t think it’s fair that I have to pay additional income taxes just because I need to supplement my Social Security income, and then I also have to pay Social Security (FICA) tax on the income itself. So I was wondering – are there any kind of tax deductions I can take advantage of? I’m not trying to get around the law, even though I don’t think it’s fair. I just thought there might be something out there I’m not aware of.
Answer: It sounds to me like you are aware of all the tax implications of your situation and unfortunately, there aren’t really any tax deductions for you to use. The only thing that may help you is how you handle your self-employment income. You are probably aware that while being self-employed you have to pay both the employee and the employer portion of FICA taxes. This is because in a non-self-employment situation, the employee pays 7.65% of his/her income while the employer matches that amount. When you are self-employed, there is no employer to make this match, so the self-employed person has to pay that, too, for a total of 15.3%. Because of this, you can deduct the employer portion you are contributing (7.65%).
Also, do not forget that any income tax paid on Social Security benefits is based on your combined income, which is your adjusted gross income (AGI), plus non-taxable interest income, plus 1/2 Social Security benefits. This total combined income determines how much of your benefit will be taxed, and they can only tax up to 85% of your benefit. So make sure you take advantage of any business deductions for your self-employment income because the lower your “combined income”, the smaller percentage of your Social Security benefits will be subject to income tax.