A large cost-of-living adjustment will help Social Security keep up with inflation in the years to come. Even though your checks will get bigger, you won't get to keep all the extra money.
If you live in a state that taxes Social Security benefits, you may have to give some of your money to the government. Residents in the following 38 states won't have to worry about this when filing their taxes.
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Some states don't tax the Social Security benefits of their senior citizens.
If you live in one of these places, you still have to pay benefit taxes. Seniors with high enough incomes are taxed on their Social Security benefits. Half of your annual Social Security benefit is included in your provisional income.
Individuals with incomes over $25,000 and married individuals with incomes over $32,000 could owe taxes on up to half of their benefits. Up to 85% of the benefits of individuals with incomes greater than $34,000 and married couples with incomes greater than $44,000 could be taxed.
This doesn't mean you will lose all of your benefits. The government would tax your benefits at your ordinary income tax rate. If you were in the 12% tax brackets, you could be taxed on up to 50% or 85% of your Social Security benefit.
You could owe benefit taxes to your state government if you live in one of these states.
Each state has its own rules about who owes Social Security benefit taxes. You might not have to pay anything. Those with yearly incomes are exempt from certain thresholds.
If you're worried that you might owe state taxes on your Social Security benefits, contact your state Department of Taxation.
Sometimes Social Security benefit taxes can be avoided. Some people may be able to pull it off by keeping costs low. If you can reduce your annual income so that it's below the thresholds listed above or the threshold for taxation in your state, the government will allow you to keep all of your benefit.
They can be used to help keep your income low. You already paid taxes on your contributions the year you made them, so money you withdraw from the account doesn't count. If you're near the threshold for benefit taxation, you can use your savings for the rest of the year.
If this isn't possible for you, you will have to pay taxes on your Social Security benefits. There is a chance that this will not result in a tax bill. It could be a little smaller if you have a refund. It is good to know how these taxes will affect your tax liability.
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