Millions of retirees in the United States rely heavily on Social Security payments. The recipients may be required to pay taxes on their payments, which comes as a shock to many.
Thresholds for Taxation
Taxes that must be paid out of your such payments are calculated according to your income level. Taxes on up to half of your benefits may be due if you are a single person with a combined income (defined as adjusted gross income + nontaxable interest plus half of your benefits) between $25,000 and $34,000. Up to 85% of your such payments may be subject to taxation if your joint income is greater than $34,000.
The thresholds are increased for joint returns filed by married couples. Up to half of your Social Security payments might be subject to taxation if your joint income is between $32,000 and $44,000. Up to 85% of your Social Security payments might be subject to taxes if your joint income is more than $44,000.
The Process of Taxation of Social Security
When calculating how much of your payments will be taxed, your income and tax bracket will both play a role. Also, the amount of taxes you owe is determined by an IRS calculation that considers your income, filing status, and the total amount of your Social Security benefits.
Ways to Reduce Taxes on Social Security
If you want to save more of your such income, you may do a few things. A tax-deferred retirement plan. Such as a standard IRA or 401(k), is one way to lower your taxable income this year (k). You may maximize your monthly benefit amount and minimize the portion of your income. That is subject to taxes by postponing the commencement of your such payments.