Calculating Taxes on Social Security Benefits

It’s also a common misconception that tax rules for Social Security apply only to retirement benefits. But benefits from Social Security trust funds, including survivor and disability benefits, are subject to tax rules. However, Supplemental Security Income (SSI) payments are not taxable. Self-employed persons must pay both halves of the Social Security tax because they’re both employee and employer. They pay the combined rate of 12.4% of their net earnings up to the maximum wage base. If you’re married and file a joint return and you and your spouse have a combined income that’s less than $32,000, your Social Security income is tax-free.

At What Age Is Social Security Not Taxable?

There are exemptions from Social Security taxes, categories of taxpayers who do not have to pay the Social Security tax. Typically, your employer will withhold this tax as a line item listed as “FICA” from your paycheck and forward it to the government. A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation.

Wages Subject to Taxation

You may then end up with total Social Security taxes withheld that exceed the maximum. When you file your tax return the following year, you can claim a refund from the Internal Revenue Service for Social Security taxes withheld that exceeded the maximum amount. People who are self-employed cover both shares — that is, 12.4 percent of their net earnings — in the form of SECA (Self-Employment Contributions Act) taxes, paid through federal tax returns. Their higher burden is partially offset by a law that allows them to take half of what they pay in Social Security taxes as an income tax deduction.

What is the social security tax limit for 2024?

  1. Here’s what you need to know about Social Security taxes and when you pay them.
  2. Our estimates are based on past market performance, and past performance is not a guarantee of future performance.
  3. Most states don’t tax Social Security, and states that do tax it typically exempt a percentage or a dollar amount.
  4. The maximum taxable earnings for 2023 and 2024 are $160,200 and $168,600 respectively.
  5. Income taxes you pay are deposited into the general fund of the United States.

It is also important to consider the age at which you take Social Security benefits, since this will impact your benefit amount. Some religious groups are opposed to receiving Social Security benefits in retirement, in the event of disability, or after the death of a spouse. For information pertaining to the registration status of 11 Financial, please contact the state securities regulators for those states in which 11 Financial maintains a registration filing.

Maximum Social Security Payout

However, it has been the rule for many years that some portion — in some cases, up to 85% — of your Social Security benefits can be taxable, depending on your income. In New Mexico, for example, Social Security income is fully deductible for residents with AGIs below $100,000 for an individual and $150,000 for a couple. Colorado residents age 65 and over can fully deduct their benefits. Missouri and Nebraska are ending taxation of Social Security income, starting with the 2024 tax year. The wage tax cap has existed since the inception of the program.

Social Security Tax Limits for 2023 and 2024

It is a mandatory tax in the United States, and most workers are required to contribute to the Social Security system. If you overpay Social Security tax due to having multiple jobs or other factors, you can potentially receive a refund when you file your federal income tax return. As mentioned above, workers making the big bucks pay for only a financial ratios portion of their income. After their income hits a certain level, their Social Security withholding stops for the year. Officially known as the wage base limit, the threshold changes every year. The 2023 limit for paying FICA taxes is $160,200, and the 2024 limit for paying FICA taxes is $168,600.This limit is adjusted annually for inflation.

How to withhold taxes from Social Security payments

Elective contributions to a qualified retirement plan are also subject to FICA tax. Social Security tax rates are determined by law and apply to both employees and employers. Employees and employers each pay a Social Security tax rate of 6.2% of employee compensation for a total of 12.4% in 2024. Those who are self-employed are responsible for the full 12.4%. The Old Age, Survivors, and Disability Insurance (OASDI) tax, more commonly referred to as the Social Security tax, is calculated as a set percentage of a worker’s income.

Budget legislation enacted a decade later under President Bill Clinton added a second, higher income threshold and made up to 85 percent of benefits taxable above it. To make that determination, the IRS adds up your adjusted gross income (AGI), your tax-exempt interest income and half of your Social Security benefits for the year. If this figure, sometimes called your “combined” or “provisional” income, exceeds $25,000 for an individual taxpayer or $32,000 for a married couple, a portion of your benefits is taxable. Everyone pays the same rate, regardless of how much they earn, until they hit the ceiling. As of 2021, a single rate of 12.4% is applied to all wages and self-employment income earned by a worker up to a maximum dollar limit of $142,800. If you have to pay taxes on your Social Security benefits, you can either make quarterly estimated tax payments to the IRS or elect to have federal taxes withheld from your benefits.

Bear in mind that if you’re self-employed, you’re considered to be both the employer and the employee for tax purposes. You’re responsible for two 6.2% contributions, for the full 12.4% tax rate. A self-employed person with the same salary would pay $1,707.48 per month for Social Security ($13,770 x .124). An individual may pay more tax than is required if they earn more than the Social Security tax cap when earnings from more than one employer are added together. Any overpayment amount is applied to the individual’s federal tax bill or is refunded. Each employer must still match the tax contribution but they don’t receive a refund even if they become aware of the overpayment.

An employer contributes an equal amount for a total combined contribution rate of 12.4%. Self-employed individuals are accountable for paying both the employee and employer share of the Social Security tax and must make sure to remit their payments on time. If you do have to pay taxes on your Social Security benefits, you can choose to have federal taxes withheld from your benefits to avoid or reduce owing tax in the future. The amount of taxes, if any, that are withheld from your Social Security check depends on your total income, which includes your Social Security benefits. For example, workers with the maximum taxable earnings who retire at age 66 will receive $3,652 per month in 2024. You should receive Form SSA-1099 from the Social Security Administration in January detailing the financial benefits you received in the previous year.

Use this information when you’re working on your tax return to determine if your benefits are subject to tax. A common complaint about the Social Security tax is that it is regressive. Due to the tax cap, a person earning a relatively small amount of money sees a higher percentage of their total income go to this tax compared to someone who earns a higher wage. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduced the employee contribution percentage to 4.2% in those years.

Most states don’t tax Social Security, and states that do tax it typically exempt a percentage or a dollar amount. You multiply your earnings—up to $147,000—by your Social Security tax rate, depending on whether you’re an employee or are self-employed. If you work for an employer, you’ll be on the hook for 6.2% of your pay. Your boss will kick an additional 6.2% and submit the combined 12.4% to the federal government. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer.

Employers were still required to pay the full tax rate for their contributions. Employer-paid accident or health insurance premiums for an employee and the employee’s spouse and dependents are not wages and they’re not included in FICA. Health Savings Account (HSA) contributions made by the employer are also not considered wages.

Finance Strategists has an advertising relationship with some of the companies included on this website. We may earn a commission when you click on a link or make a purchase through the links on our site. All of our content is based on objective analysis, and the opinions are our own. Benefits are lowered for people who retire before reaching the full retirement age.

If you’re married and your combined income is between $32,000 and $44,000, you must pay income tax on half of your benefits. If you’re married and your combined income is more than $44,000, you must pay income tax on 85% of your benefits. If you need clarification on whether your Social Security benefits are taxable, the IRS has a tool on its website that can help. Once you know how much of your benefits are taxable, you must include that amount on Line 6b of Form 1040. That income will be taxable, along with any other income, based on your tax bracket and the income tax rate tied to it.

The federal government collects $5,270 (.062 x $85,000) from Izzy to help pay for retirement and disability benefits. There are a few ways you can affect how much tax you pay on Social Security, most of which tie into decisions about taking retirement plan withdrawals as taxable income. Apart from that, though, most older Americans don’t have much flexibility with their tax planning.

Social Security Disability Insurance (SSDI), which is a separate program for people with qualifying disabilities, also may be taxable. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services. Jacob, on the other hand, earns $175,000 for the tax year 2023. The Social Security tax rate will only be applied up to the limit of $160,200.