How To File Social Security Income On Your Federal Taxes
Once you calculate the amount of your taxable Social Security income, you will need to enter that amount on your income tax form. Luckily, this part is easy. First, find the total amount of your benefits. This will be in box 3 of your Form SSA-1099. Then, on Form 1040, you will write the total amount of your Social Security benefits on line 5a and the taxable amount on line 5b.
Note that if you are filing or amending a tax return for the 2017 tax year or earlier, you will need to file with either Form 1040-A or 1040. The 2017 1040-EZ did not allow you to report Social Security income.
How Did Congress Make Social Security More Fair
Congress made Social Security less vulnerable to unanticipated economic developments by switching to a system in which beginning payouts were connected exclusively to wage growth. It also established a system in which future retirees benefits would replace about the same amount of their pre-retirement wages.
Three Ways To Reduce The Taxes That You Pay On Benefits
Is Social Security taxable? For most Americans, it is. That is, a majority of those who receive Social Security benefits pay income tax on up to half or even 85% of that money because their combined income from Social Security and other sources pushes them above the very low thresholds for taxes to kick in.
But there are three strategies you can useplace some retirement income in Roth IRAs, withdraw taxable income before retiring, or purchase an annuity, to limit the amount of tax you pay on Social Security benefits.
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Estimated Net Benefits Under Differing Circumstances
In 2004, Urban Institute economists C. Eugene Steuerle and Adam Carasso created a Web-based Social Security benefits calculator. Using this calculator it is possible to estimate net Social Security benefits for different types of recipients. In the book Democrats and Republicans Rhetoric and Reality Joseph Fried used the calculator to create graphical depictions of the estimated net benefits of men and women who were at different wage levels, single and married , and retiring in different years. These graphs vividly show that generalizations about Social Security benefits may be of little predictive value for any given worker, due to the wide disparity of net benefits for people at different income levels and in different demographic groups. For example, the graph below shows the impact of wage level and retirement date on a male worker. As income goes up, net benefits get smaller even negative.
However, the impact is much greater for the future retiree than for the current retiree . The male earning $95,000 per year and retiring in 2045 is estimated to lose over $200,000 by participating in the Social Security system.
The next image shows estimated net benefits for married men and women at different wage levels. In this particular scenario it is assumed that the spouse has little or no earnings and, thus, will be entitled to collect a spousal retirement benefit. According to Fried:
Spending The Trust Funds
The money was all deposited directly into the general fund and used for non-Social Security purposes. Reagan spent every dime of the surplus Social Security revenue, which came in during his presidency, on general government operations. His successor, George H.W. Bush, used the surplus money as a giant slush fund, and both Bill Clinton and George W. Bush looted and spent all of the Social Security surplus revenue that flowed in during their presidencies.
So we cant blame the whole problem on Reagan. Reagan was the one who figured out a way to use Social Security money as general revenue, and his successors just followed his example.
The $2.7 trillion, which is alleged to be in the trust fund, was all spent for wars, tax cuts for the rich, and other government programs. If the money is repaid at some point in the future, we could say is was just borrowed. But no arrangements have been made to repay the money, and nobody in government is suggesting that the money should be repaid. So, if it is never repaid, the money will definitely have been stolen.
This would not be such a serious problem if Social Security was still running annual surpluses. But Social Security ran it last annual surplus in 2009, and began running permanent annual deficits in 2010. The cost of paying full Social Security benefits for 2010 exceeded Social Securitys total tax revenue by $49 billion.
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How Can I Avoid Paying Taxes On Social Security Benefits
One of the easiest ways to prevent taxes from being taken out of social security benefits is to avoid earning extra income or to work without pay. However, if that’s unavoidable, you could try to limit your earnings to less than $25,000 overall if you’re filing taxes individually and less than $32,000 if you’re filing with a spouse.
According to the Social Security Administration , if someone is married and files taxes as an individual, they’ll probably have to pay taxes on benefits. To calculate combined income, do the following calculation:
Adjusted gross income + Nontaxable interest + One-half of social security benefits = Combined income
However, having another source of income outside of social security may be unavoidable. The SSA states, “On average, retirement beneficiaries receive 40 percent of their pre-retirement income from Social Security.” The SSA also mentions that it’s important for people to plan for retirement properly to make sure they make enough money in retirement.
Taxing Social Security Benefits Is Sound Policy
Social Security beneficiaries with higher incomes pay income tax on part of their benefits. Those with incomes below $25,000 pay no tax on benefits, while those with the highest incomes pay tax on as much as 85 percent of their benefits. This arrangement is sound for several reasons:
- The substantial proceeds from taxing Social Security benefits are credited to the Social Security and Medicare trust funds, strengthening the programs financing.
- The taxation of benefits is broadly progressive, since people with low incomes pay nothing and the tax rate on benefits increases with income.
- As an earned benefit, Social Security should be subject to tax, like other earned benefits, such as employer pensions.
- Social Securitys tax treatment is more favorable than that of private defined-benefit pensions, primarily because of the protections for low-income beneficiaries.
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Social Security Number Theft
Because Social Security Numbers have become useful in identity theft and other forms of crime, various schemes have been perpetrated to acquire valid Social Security Numbers and related identity information.
In February 2006, the Social Security Administration received several reports of an email message being circulated addressed to “Dear Social Security Number And Card owner” and purporting to be from the Social Security Administration. The message informs the reader “that someone illegally is using your Social Security number and assuming your identity” and directs the reader to a website designed to look like Social Security’s Internet website.
“I am outraged that someone would target an unsuspecting public in this manner,” said Commissioner Jo Anne B. Barnhart. “I have asked the Inspector General to use all the resources at his command to find and prosecute whoever is perpetrating this fraud.”
Once directed to the phony website, the individual is reportedly asked to confirm his or her identity with “Social Security and bank information”. Specific information about the individual’s credit card number, expiration date and is then requested. “Whether on our online website or by phone, Social Security will never ask you for your credit card information or your PIN,” Commissioner Jo Anne B. Barnhart reported.
What Was Biden’s Role
Biden was a U.S. senator from Delaware, but he wasn’t one of the senators on the commission, according to a list of members from the Social Security Administration. The agency also had an online copy of the commission’s recommended changes, which included “taxation of benefits for higher-income persons.”
There’s no evidence to support the claim that Biden wrote the bill. In fact, it was introduced in the House by a Democratic representative from Illinois, Dan Rostenkowski.
Biden voted for the bill when it came to the Senate, and it passed 88-9.
GovTrack, a government transparency website, recorded Biden’s yea vote on the 1993 Act.
Individuals who report a combined income between $25,000 and $34,000 may be liable for income taxes for up to 50% of Social Security benefits. For joint filers, the bracket is $32,000 to $44,000. Those whose earnings match or exceed the upper tier of each bracket could pay tax on up to 85% of benefits, according to the SSA.
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What Is Social Security Disability Insurance
Social Security Disability Insurance is a social insurance program funded by payroll taxes meant to help you if you become disabled. The program’s administrator, the Social Security Administration , generally allows you to earn coverage benefits if you meet their definition of disabled and are unable to work for a year or more.
The Social Security Disability Insurance program provides modest though vital benefits to you if you have suffered a serious and long-lasting medical condition that meets Social Security’s strict definition of disability. As a result, you can receive benefits if you meet the eligibility requirements.
Does A Wife Get Husbands Social Security When He Dies
These are examples of the benefits that survivors may receive: Widow or widower, full retirement age or older 100% of the deceased worker’s benefit amount. Widow or widower, age 60 full retirement age 71½ to 99% of the deceased worker’s basic amount. Widow or widower with a disability aged 50 through 59 71½%.
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Sorry Folks But The Taxation Of Benefits Is Here To Stay
To be crystal clear, there aren’t many people that like this tax, as it’s often viewed as a means of being double taxed . Nevertheless, even with overwhelming public support to shelve the taxation of benefits, it’s not going to happen.
The reason? Social Security is, once again, facing an imminent cash shortfall. Despite what looks to be a healthy trust fund ratio of 289% as of 2018, the Social Security Board of Trustees has forecast that the program’s nearly $2.9 trillion in asset reserves will be completely gone by 2035. If Congress were to fail to act, this would lead to an across-the-board benefit cut for retirees of up to 23%. To just lay this out in a no-nonsense way, Social Security needs all the revenue it can get right now.
If lawmakers were to end the taxation of benefits, it could definitely lead to a modest boost in income for middle-class and upper-income retired individuals and couples. However, it would be removing quite a bit of money from Social Security each year. Last year, the taxation of benefits accounted for $35 billion of the $1 trillion collected, and over the next decade an estimated $596 billion will be collected by the Social Security program solely from taxing benefits. Removing this income from the equation would only speed up the process by which Social Security’s asset reserves would be exhausted, thereby leading to even quicker across-the-board benefit cuts.
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Claim Of Discrimination Against The Poor And The Middle Class
Workers must pay 12.4 percent, including a 6.2 percent employer contribution, on their wages below the Social Security Wage Base , but no tax on income in excess of this amount. Therefore, high earners pay a lower percentage of their total income because of the income caps because of this, and the fact there is no tax on unearned income, social security taxes are often viewed as being regressive. However, benefits are adjusted to be significantly more progressive, even when accounting for differences in life expectancy. According to the non-partisan Congressional Budget Office, for people in the bottom fifth of the earnings distribution, the ratio of benefits to taxes is almost three times as high as it is for those in the top fifth.
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Claim That Politicians Exempted Themselves From The Tax
Critics of Social Security have said that the politicians who created Social Security exempted themselves from having to pay the Social Security tax. When the federal government created Social Security, all federal employees, including the president and members of Congress, were exempt from having to pay the Social Security tax, and they received no Social Security benefits. This law was changed by the Social Security Amendments of 1983, which brought within the Social Security system all members of Congress, the president and the vice president, federal judges, and certain executive-level political appointees, as well as all federal employees hired in any capacity on or after January 1, 1984. Many state and local government workers, however, are exempt from Social Security taxes because they contribute instead to alternative retirement systems set up by their employers.
Proposals To Reduce The Taxation Of Benefits
Despite the strong rationale for taxing a portion of Social Security benefits, some members of Congress from both sides of the aisle have proposed scaling it back. These proposed changes would reduce Social Security revenues, worsening the programs long-run financial shortfall and requiring additional tax increases or benefit cuts to restore long-run solvency. In addition, they would make the system of Social Security benefits and taxes less progressive.
Former Rep. Sam Johnson, who chaired the Social Security Subcommittee when Republicans controlled the House, proposed scaling back the taxation of benefits as part of a bill to restore Social Security solvency by cutting scheduled benefits. Johnsons bill would have phased out the portion of the taxation of benefits that is credited to the Social Security trust funds. That provision would have increased Social Securitys 75-year shortfall by 17 percent , according to the Social Security actuary.
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Debates On The Constitutionality Of The Act
Two Supreme Court rulings affirmed the constitutionality of the Social Security Act.
- Steward Machine Company v. Davis, 301 U.S, 548 held, in a 5â4 decision, that, given the exigencies of the Great Depression, ” is too late today for the argument to be heard with tolerance that in a crisis so extreme the use of the moneys of the nation to relieve the unemployed and their dependents is a use for any purpose narrower than the promotion of the general welfare“. The arguments opposed to the Social Security Act ” rel=”nofollow”> Butler, McReynolds, and Sutherland in their opinions) were that the social security act went beyond the powers that were granted to the federal government in the Constitution. They argued that, by imposing a tax on employers that could be avoided only by contributing to a state unemployment-compensation fund, the federal government was essentially forcing each state to establish an unemployment-compensation fund that would meet its criteria, and that the federal government had no power to enact such a program.
- Helvering v. Davis, 301 U.S. 619 , decided on the same day as Steward, upheld the program because “The proceeds of both taxes are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way”. That is, the Social Security Tax was constitutional as a mere exercise of Congress’s general taxation powers.
Paying Taxes On Social Security
You should get a Social Security Benefit Statement each January detailing your benefits during the previous tax year. You can use it to determine whether you owe federal income tax on your benefits. The information is available online if you enroll on the Social Security website.
If you owe taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or have federal taxes withheld from your payouts before you receive them.
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The Supreme Court And The Evolution Of Social Security
The Supreme Court has established that no one has any legal right to Social Security benefits. The Court decided, in Flemming v. Nestor , that “entitlement to Social Security benefits is not a contractual right”. In that case, Ephram Nestor, a Bulgarian immigrant to the United States who made contributions for covered wages for the statutorily required “quarters of coverage” was nonetheless denied benefits after being deported in 1956 for being a member of the Communist party.
The case specifically held:
The Supreme Court was also responsible for major changes in Social Security. Many of these cases were pivotal in changing the assumptions about differences in wage earning among men and women in the Social Security system.
A Couple Of Concernstaxes And Medicare Premiums
This all sounds like good news so far, but you should also be aware that continuing to work past 70 could cost you a bit more in taxes and Medicare premiums.
- Required Minimum Distributions increase your taxable incomeIf you have traditional retirement accounts, you must take an RMD at age 70½ or 72 depending on your birthday. This is considered ordinary income and could possibly push you into a higher tax bracket, especially as you continue to earn other taxable income. Not only would that possibly increase your income tax bill, you’d also most likely have to pay taxes on your Social Security benefits as I describe next.
- Increased income may make your Social Security benefits taxableThe percentage of your Social Security benefits subject to income tax will depend on your annual income. Currently, if you’re a single filer and make $25,000 to $34,000, up to 50 percent of your benefits may be taxed for income over $34,000, up to 85 percent of benefits may be taxed. Current limits for married filing jointly are $32,000 to $44,000 and over $44,000 respectively.
- Higher income might mean higher Medicare Part B and D premiumsSimilarly, you may be charged more for Medicare premiums if you earn over a certain amount. For 2022 those thresholds are $91,000 for single filers and $182,000 for married filing jointly. However, if you still have healthcare coverage through an employer, you may be able to delay taking Part B and possibly Part D.
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