Since it is tax time in Colorado, you are probably asking yourself are my social security benefits taxed? According to the Social Security Administration, some beneficiaries do pay federal income taxes on their Social Security benefits. If you have other significant sources of income (such as wages, self-employment, interest, dividends, and other taxable income that must be reported on your tax return) in addition to your benefits, then you may owe taxes on your Social Security benefits.
Our knowledgeable legal team at The Wilhite Law Firm can help you better understand your tax obligations.
Whether Your Social Security Benefits Are Taxed Depends on Your Total Income Levels
Each January, you will receive a Social Security Benefit Statement (Form SSA-1099) showing the amount of benefits you received in the previous year. You can use this Benefit Statement when you complete your federal income tax return to find out if your benefits are subject to tax.
Everybody who receives retirement, survivor, or disability social security benefits must report the net amount of those benefits on line 6a of Form 1040, which is the regular U.S. Individual Income Tax Return form, or Form 1040-SR, which is the tax return form for people 65 years or older. The taxable part of your benefits specifically depends on what your total amount of benefits and income was for the preceding taxable year.
What Are the Income Levels that Trigger Income Tax Obligations?
No one pays federal income tax on more than 85% of his or her Social Security benefits based on Internal Revenue Service (IRS) rules, so whether you are obligated to pay taxes on your benefits depends on how much income you acquired during the preceding year. How you decide to file taxes can make a difference in the income levels that trigger tax obligations.
People Filing as Individuals
If you file a federal tax return as an “individual” and your combined income is:
- Between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
- More than $34,000, up to 85 percent of your benefits may be taxable.
Married People Filing a Joint Return Together
- Between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
- More than $44,000, up to 85 percent of your benefits may be taxable.
Married Individuals, Filing Separately
If you are married and you choose to file a separate tax return instead of filing jointly with your spouse, you probably will pay taxes on your benefits.
An experienced attorney can help offer you helpful advice as to what kind of filing would most benefit your situation. We will take the time to ensure you understand every step of the process, and we can also guide you through the filing process to ensure that you complete the necessary paperwork correctly.
How Do You Calculate Your Combined Income for Tax Purposes?
Calculating your “combined income” is essential for determining whether you need to pay income taxes on your Social Security Benefits. Your combined income also determines the amount of your tax burden.
Your adjusted gross income + Nontaxable interest + ½ of your Social Security benefits
= Your “combined income”
Our experienced legal team is extensively familiar with the Tax Code. We can help you calculate your combined income so you know what kind of tax burden you might be facing.
If you do have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from your benefits.
For more information about taxation of benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.
What Types of Disability-Related Social Security Benefits are Taxed?
Not all Social Security disability benefits are subject to taxation. Each program has considerably different rules for taxation. In addition to your overall income levels playing a role, whether you need to pay taxes on your benefits also depends on the particular kind of disability payments you are collecting.
Supplemental Security Income
Supplemental Security Income (SSI) is a need-based cash assistance. Fortunately, SSI benefits are never subject to federal income tax, so you would not need to worry about paying taxes on your SSI benefits.
Social Security Disability Insurance
Social Security Disability Insurance (SSDI) is a monthly benefit paid to people who have serious, long-term, or permanent, physical or mental impairments that prohibit them from working. SSDI benefits are sometimes taxable. The rules for determining if SSDI benefits are taxable are the same as the rules applicable to Social Security retirement benefits. You will need to calculate your provisional income, which is half of your SSDI benefits plus any other income you have, such as dividends or wages. Essentially, you will only need to pay taxes on your SSDI benefits if your combined provisional income is greater than $25,000 for people filing as individuals or $32,000 for married couples filing jointly.
Employer or Private Disability Insurance
Private and employer disability insurance depends on who paid the premiums and how they were paid. If you paid the insurance premiums yourself by using after-tax money, your benefits would be tax-free. However, if you paid them with pre-tax money, that income would be taxable. Similarly, if your employer paid the insurance premiums, the benefits would be fully taxable.
To verify your exact situation, use the IRS Interactive Tax Withholding Estimator, which can help you understand if you owe taxes. Alternatively, you can check out the IRS Interactive Tax Assistant to determine if your specific benefits are taxable.The seasoned team at The Wilhite Law Firm can review the unique details of your situation to help you understand your precise tax burden.
Reach Out to a Legal Team Familiar With the Tax Laws for Social Security Benefits
If you are not receiving the social security disability benefits you are entitled to, please call us to see how we may be able to help. In addition to helping you obtain your rightful benefits, we can also help you understand your relevant tax obligations with respect to your Social Security benefits.
The Wilhite Law Firm is Denver’s personal injury law firm. With over 40 years of experience and a compassionate team prepared to listen to your story, The Wilhite Law Firm is here to help. Contact us anytime.
