Social Security Report

Q & A

I got Social Security for the first time this year…will it be taxed?

Complete Question: This is the first year I ever received Social Security benefits. I have other income from investments and salary from before I retired. I was informed that due to my high income this year, there is a good chance I will have to pay Social Security taxes. Do I have to pay both Federal and State income tax on this? I am concerned because there were no tax deductions on my Social Security benefit payments.

Answer: Depending on your total income, your benefits could be taxed, but it is different than regular income. Taxing of Social Security benefits typically occurs when someone is also receiving wages, self-employment income, interest, dividends, and/or other taxable income. The maximum amount of your Social Security benefits that can be taxed on a federal level is 85%. As for the state level, most states do not tax Social Security benefits. Minnesota, Nebraska, North Dakota, Rhode Island, Vermont, and West Virginia tax benefits using the same formula as the federal government. Colorado, Connecticut, Iowa, Kansas, Missouri, Montana, New Mexico, and Utah tax Social Security benefits using their own individual formulas. All other states, as well as the District of Columbia (Washington D.C.) do not tax benefits.

You are correct in that Social Security does not deduct taxes from your benefit check. However, if you anticipate getting taxed on your benefits, you can request to have taxes withheld from your benefits so that it is not such a hard hit at tax time. To do this, you need to fill out a W-4V (Voluntary Withholding Request) and return it to your local Social Security office by mail or in person. You can choose to have them hold 7%, 10%, 15%, or 25% of your benefit amount, or you can choose a specific dollar amount. Another option is to just pay a quarterly tax payment to the IRS.

Notice: If you have any additional questions on benefit taxation or any other Social Security question, you can reply below. If you would like to discuss your situation privately, you can email C.J. Miles at [email protected]. Please do not provide any personal identification information such as Social Security numbers.