Your Financial and Tax Health: Your Social Security Might Not be Tax Free
on Tuesday, 31 March 2020. Posted in Doctor of Fitness
When it comes to planning for retirement, many people mistakenly believe that their Social Security benefits won’t be taxed. It’s an easy assumption to make. After all, they paid into the system for years. Why should they have to pay tax on money they already had deducted from their check? Unfortunately, the government doesn’t see it that way. There are many situations in which Social Security benefits may be taxable.
When people say their benefits aren’t taxable, it’s sort of a half-truth. Technically, these retirement benefits aren’t taxed at the federal level (although they may still be taxed at the state level). In other words, if the ONLY income you received during the year was from Social Security, then you won’t have to pay tax. However, like many household chemicals which are harmless by themselves but can become deadly poisons when mixed with other chemicals, Social Security benefits may be taxable if combined with other income, such as a part-time job or a pension. Depending on your overall income from Social Security and other sources, your benefits may be taxable up to 85 percent. This article from SmartAsset provides a great summary of how state and federal taxing authorities deal with Social Security benefits.
Retirement can be a great time of life, a chance to enjoy the hard-earned fruits of your life’s labors. However, it does require careful thought. Don’t overlook the tax consequences of your Social Security benefits when you’re making your retirement plans.