Social Security does not automatically withhold federal taxes on Social Security benefits, but you can request Social Security do so. Whether or not you wish to have federal taxes withheld will depend on your overall income from Social Security benefits and other sources.
About 70 percent of all beneficiaries won’t end up having to pay federal taxes on their benefits, but the other 30 percent should examine their options as to whether they wish taxes to be held from their benefits.
Tax laws state an individual with adjusted gross income of $25,000 or more and a joint return reporting $32,000 or more may be subjected to federal taxes on their benefits. The higher the income you have the higher tax percentage you will pay on your benefits. A single filer with adjust gross income between $25,000 and $34,000 and a joint return with income between $32,000 and $44,000, will pay federal taxes on up to 50 percent of their Social Security benefits. It is important to note though that only 50 percent of your Social Security benefits will be considered in these amounts along with other income. Higher income earners can pay taxes on up to 85 percent of their Social Security benefits. Individual filers who make more than $34,000 and joint filers who make more than $44,000 annually are subjected to paying taxes on 85 percent of their benefits.
If you have determined that you will have to pay federal taxes on your benefits you can ask Social Security to withhold a percentage of your pay so you don’t face a tax penalty at the end of the year. Social Security allows you to designate seven, 10, 12 or 22 percent of your monthly benefit to withhold for tax purposes.
Federal taxes are one thing, but most people also have to pay state income tax or other local taxes. In addition to federal taxes, people living in the following states may have to pay state taxes on their Social Security benefits:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- North Dakota
- Rhode Island
- Utah
- Vermont
- West Virginia
