Federal Exemptions for Social Security Tax
If your total income was low enough, you may not need to pay federal taxes on any of your Social Security income. To find out if any of your benefits are taxable, compare your base income to the allowance for your tax filing status. Your base income is your income from all sources -- including tax-exempt interest -- other than Social Security, plus half of your Social Security benefits. For example, say your income other than Social Security was $10,000 and your Social Security benefits were $8,000. Your base income would be $14,000 ($10,000 plus half of $8,000). Single filers, head of household filers and widowers may have up to $25,000 in base income and pay no taxes on Social Security. The limit is $32,000 for married couples filing jointly.
Determining Taxable Amount
If your base income exceeds the limit for your filing group, you'll have to pay taxes on some of your Social Security benefits. If you're a single filer and your base income is between $25,000 and $34,000, you'll have to pay tax on up to 50 percent of your Social Security benefits. If it's more than $34,000, you'll have to pay tax on up to 85 percent of your benefits. Joint filers with base income between $32,000 and $44,000 will have to pay tax on up to 50 percent of benefits, and joint filers who earned more than $44,000 will have to pay tax on up to 85 percent of benefits. To determine exactly how much of your benefits are taxable, complete the IRS Social Security Benefits Worksheet (see Resources).
Tax Liability for Social Security Benefits
Taxable Social Security benefits are taxed at ordinary tax rates. Your tax bracket is determined by your filing status and your adjusted gross income after considering deductions and credits. After identifying your tax bracket on the current year's tax table, multiply the rate by the amount of taxable Social Security benefits to calculate the tax you'll pay on the benefits. For example, if $6,000 of your benefits are taxable and you're in the 15 percent income tax bracket, you'll pay $900 in tax on your benefits.
State Social Security Taxes
Depending on which state you live in, you may need to pay state taxes on your Social Security benefits. Some states follow the federal calculations for taxing Social Security while others exempt certain citizens or don't tax Social Security benefits at all. Contact your state comptroller's office by phone or visit its website to learn your state's policy on taxing benefits.