Taxes Affecting Your Retirement


Over the span of your working days, Social Security taxes are withheld from your salary or self-employment tax. Many people are surprised to find out that their Social Security benefits may be taxed once they retire.

The amount you could be paying depends on your other forms of income. If you fall within a certain tax bracket, you will be required to include 50% to 85% of your Social Security benefits in your total income subject to regular taxes.

How to calculate your provisional income taxes

To find out if your benefits will be taxed or not, there is a process to calculate your provisional income. You take your gross income from your tax return, any tax-free interest you may have, your spouse’s income if you file jointly, and half of the benefits you and your spouse have received during the year. When you add all these together, you will have your provisional income. Based on this income, you will be placed in one of three brackets that will determine whether or not your Social Security benefits will be taxed. The three brackets are defined as:

  • If your provisional income is less than $32,000 for joint filers, or $25,000 for single taxpayers, your Social Security benefits are not taxed.
  • If your provisional income is $32,001 to $44,000 for joint filers, or between $25,001 and $34,000 for single filers, you must report up to 50% of your Social Security benefits as taxable income.
  • If your provisional income is more than $44,000 if you file jointly, or more than $34,000 for single filers, you must report up to 85% of your benefits as income on Form 1040.

When you don’t have to pay taxes on your Social Security benefits, or if you pay taxes on 50% of them, you must be aware that an increase in your income can bump you into the next tax bracket. This will require you to pay taxes on the additional income as well as more of your benefits. This could happen if you collect larger retirement plan distributions or capital gains during the year.

Avoiding the tax bill

If you’re sure you will have to pay taxes on your benefits, you can file Form W-4V to have the IRS withhold the tax amount from your distribution. If you don’t wish to file this form, you may have to make estimated tax payments.

Contact us to know what your exact provisional income is and if your benefits will be taxed or not. We will also help you with tax planning to help keep your taxes low so you can enjoy retirement.

CAPATA is a full-service accounting firm located in Laguna Niguel in southern California.