If you're drawing Social Security retirement or disability, there's a chance a portion of your benefits will be subject to state or federal income tax. Even if you're no longer working, you can prepare by having Social Security withhold a portion of your check every month. You can use a W-4 form to estimate how much should be withheld. This will reduce any payment due come tax time in the following year.
Taxes and Withholding
Federal taxes are due on Social Security benefits when your "combined income" reaches a certain level. Combined income includes half of the Social Security, any other wages, as well as any tax-exempt interest income. Normally, Social Security does not withhold anything from the checks it sends out. You can, however, request that the agency withhold a portion of your check and send the funds to the IRS, just as as regular employer would do.
Completing Form W-4V
To request withholding on your Social Security, secure a Form W-4V from the IRS, or download and print out the form from the IRS website. You can also get the form by calling Social Security at 800-772-1213. This form is not the same as that used by employees when they begin a new job, or when they want to adjust their withholding amount. The W-4V is for a voluntary withholding by someone who is receiving government payments such as unemployment, Social Security, or crop disaster payments. Fill out the firm with the requested information, including your name, address, and Social Security number.
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Selecting Withholding Rate
Select the box corresponding to the amount of your benefit you want withheld. The available amounts are 7, 10, 15 or 25 percent. To make this decision, you'll have to estimate the amount of taxes you'll owe on your Social Security benefits. If your estimate is low, you'll owe money on April 15. If you over-estimate, then you will be due a refund. Once the form is completed, send it in to Social Security by mail, or bring it to your local Social Security office. Once the agency processes the form, it will begin withholding from the funds that, in most cases, arrive by electronic transfer to a bank account. Since there's no longer a check stub, there's no written record. Check that deposit carefully and contact Social Security if the withholding is incorrect.
State Taxes and Social Security Withholding
The tax situation in individual states varies. As of 2015, 13 states were taxing Social Security benefits, either at their own rate or using the same calculation as the IRS. If your state taxes Social Security benefits, you may be on the hook for a payment to the state treasury come tax time. Unfortunately, Social Security does not have the ability to withhold state taxes from its benefits. You would instead need to make estimated tax payments to the state, using a calculation of how much you would owe based on the rate of tax levied.