Do I Need to Pay Taxes on My Social Security? | Ask a Savant Financial Advisor
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2023 Social Security & Tax Cheat Sheet
This quick reference guide provides a high-level overview of everything you need to know about the 2023 tax year, including key deadlines and the income tax brackets you can use to determine if your Social Security benefits will be taxed or not.
If you’re in the process of retirement planning, chances are you’ve looked at your estimated Social Security payments. But have you done the math to see if your benefits will be subject to income tax? Just a $1 change in income can be the difference between whether 0%, 50%, or 85% of your Social Security payments are taxed.
Your first step toward solving this problem is to look at your combined income and compare it to the current SSA thresholds. Social Security defines your combined income as your adjusted gross income + nontaxable interest + ½ of your annual Social Security benefits. I typically review my client’s tax returns to gather this information. Based on your combined income and tax filing status, you’ll be able to see how much, if any, of your Social Security income will be subject to federal income tax. It’s important to note that you may need to pay income taxes at the state level as well, depending on where you live. As of 2023, there are 13 states that tax social security benefits in some capacity. In 2022, there were 11.
If your Social Security income will be subject to taxes, you may want to consider setting up automatic tax withholding on your payments with the SSA. This election is often missed by retirees when they first file for payments, and it can quite the confusion come tax filing time when they’re hit with an unexpected tax bill instead of a refund. If you did not elect to withhold taxes when you first filed for your payments, don’t worry – you can change your elections anytime with SSA Form W-4V, which you can find online at SSA.gov.
Here’s another little-known fact – the amount of your Social Security benefit that is considered taxable can affect how your investment income is taxed, such as qualified dividends and capital gains. When it comes to retirement planning, everything is so interconnected. Many retirees don’t want to keep on top of it all in their golden years. That’s where a comprehensive financial planning firm like Savant can help.
My name is Sobhi and I am a financial advisor with Savant Wealth Management. If you’re looking for help as you navigate the many steps involved in the retirement process, including Social Security, I encourage you to get in touch.
Let’s figure this out together.
Sobhi Baghdadi
Financial Advisor