Social Security and the IRS

by | Aug 1, 2019 | Toby Talks Tax | 0 comments

I like my creature comforts, and I plan to enjoy them in my old age.  I’ve paid regularly into Social Security (“SS”) over the past couple of years, and I’m counting on the monthly check to help buy my kibble and my treats during retirement.  But today my sharp ears picked up The Boss discussing possible taxation on SS income.

So now I’m howling:  Will I be forced to share my (social) security blanket with Uncle Sam?

The answer – maybe.

To find out more about taxable retirement benefits, I dug around in Uncle Sam’s guidelines.  Here’s what will happen when I start receiving monthly SS benefits:

  • In January of each year, the Social Security Administration will send me Form SSA-1099, sort of like a W-2, which shows the amount of my SS benefits from the previous year.
  • I might not owe any federal income tax for the benefits if I have no other income during the year.  I might not even have to file an income tax return for the year.
  • But The Boss was generous with my retirement plans, meaning that those treats will soon be coming my way.  I will need to obey Uncle Sam’s commands about determining whether my SS benefits are taxable.
  • First I have to get my calculator out (it’s hard to count so high on my paws!).  I must add 50% of my SS benefits to all my other income, including tax-exempt interest, such as interest from municipal and state bonds.
  • Then I have to find the “base amount” of income for my filing status.  (By the way, Ladies, I’m single, with no dependents, but I’m totally devoted to The Boss.)  The “base amount” changes from year to year, or upon changes to filing status.  I can use the IRS Interactive Tax Assistant tool, or bark at my accountant or The Boss, to scratch up the correct figure.
  • If my income exceeds the “base amount” for my filing status for the year, then I most likely will have to file a tax return, and I might have to dig up some of my stash to hand over to Uncle Sam.

Just to be on the safe side, I will consult with The Boss before having a CPA prepare my tax return.

It’s always a good idea to beg for help from a tax professional when it comes to taxation.  Yip at The Boss at Law Offices of Christy Lee, P.C.  She will be happy to throw out some tasty tidbits about paying taxes on retirement benefits.