Social Security has been one of the most important financial and social initiatives in the history of the United States, and today, many retirees rely on the Social Security program to pay bills and supplement other forms of retirement income. If you’re receiving Social Security payments, especially if you’re new to the program, you may be wondering whether or not Social Security is taxed, and if so, at what rate. Although the rules can seem a bit complicated, it’s important to know where you stand financially prior to and during retirement to maximize your earning potential and savings.

Does Social Security Get Taxed?

In many cases, Social Security payments are not taxed. According to the Social Security Administration, this is true for retirees who receive less than $25,000 per year from the program. If you’re married and filing jointly, the total becomes $34,000 before taxes kick in. As the amount of Social Security increases, the percentage of the total that is subjected to taxes also increases. Keep in mind that these totals are only representative of federal taxation. Different states may treat Social Security income differently, so if you’re unsure as to your situation, it’s best to consult with a tax professional. As of 2019, thirteen states apply additional taxes to Social Security payments.

Does Other Income Affect Social Security Taxes?

As mentioned above, Social Security payments are taxed once income reaches a certain level. As a result, any additional income will count toward your total income, including Social Security. For example, if you receive $1,000 per month in Social Security for a total of $12,000 per year, that money will not be taxed federally. If you work a part-time job and earn additional income, those funds get lumped in with the Social Security payments and may push you over the threshold for your age and filing status. Aside from income earned through a job, you might also push yourself over the earning threshold from dividend payments and other forms of income not related to a job.

Do Social Security Taxes Amount to Double Taxation?

One common concern when people learn that some Social Security money may be subject to taxation is that the practice may seem like double taxation at first glance. The reason it isn’t is because when Social Security taxes are deducted from a paycheck, they are dispersed back to the individual and then taxed, meaning these funds are only taxed once. Essentially, what this does is defer the tax. If Social Security is deducted, then taxed, then taxed again when disbursed, that would be double taxation. The only time when someone may face what amounts to double taxation is when specific state tax laws come into play. In these situations, Social Security income may be subject to taxation when it reaches a certain threshold set by the state.

Can You Minimize Social Security Taxes?

There are plenty of financial strategies that can minimize the chances of being taxed for Social Security, including taking Social Security payments earlier or later in life. How much you’ve earned on an annual basis prior to taking Social Security may also change the amount of each payment and could alter the amount of taxation. Once again, most retirees who receive payments from the Social Security Administration will either not be taxed because their payments fail to reach the threshold for taxation, but there are a number of factors that can change over the course of one’s retirement years that can alter a tax situation. Retired individuals or those facing retirement are encouraged to speak with a financial professional who specializes in retirement tax planning in order to receive advice that takes into account the unique circumstances of each situation.

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