Don’t Be Suprised By Social Security Taxes

Don’t Be Surprised By

Social Security Taxes

When you reach the appropriate age, it’s easy to apply for Social Security retirement benefits – just go to Social Security’s website and fill out the online form. But there’s another part of the application process that a surprising number of people ignore – the part that asks how much money, if any, you want withheld for federal taxes. And if you skip this section, you could face an unpleasant surprise when it’s tax-filing time. Here are the details: • If you’re a single filer … If your combined annual income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your Social Security benefits. (“Combined” income includes your adjusted gross income, non-taxable interest and one-half of your annual Social Security benefits.) If your combined income is more than $34,000, up to 85% of your benefits may be taxable. • If you’re married and file jointly … If you and your spouse have a combined annual income between $32,000 and $44,000, you may be taxed on up to 50% of your benefits. If your combined income is more than $44,000, up to 85% of your benefits may be taxable. These numbers might seem high, but they don’t mean you’ll lose 50%, or 85%, of your benefits – they are just the percentages of benefits you may be taxed on at your personal income tax rate. To help avoid a big tax bill or an

Nathan M. Kirby Edward Jones Financial Advisor

underpayment penalty, you can file Form W-4V with the Social Security Administration and request to have 7%, 10%, 12% or 22% of your monthly benefit withheld. Your tax advisor can help you choose the withholding percentage that’s appropriate for your situation. The amount of tax you may need to pay will also depend on when you start taking Social Security. The earlier you take benefits, the smaller your monthly checks, and the smaller the taxes. But taxes may not be a key issue for you in deciding when you need to begin collecting your payments. You may place more weight on other factors, such as your anticipated life expectancy, your employment situation, your spending needs and your spouse’s income and Social Security situation. Here’s something else to keep in mind: Because Social Security taxes are based on your overall income, the amount of money you withdraw during retirement,

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Feeling like you paid too much in taxes this year?

Contact your financial advisor today to learn about investing strategies that could benefit you. and where that money comes from, can also affect your tax situation. For example, withdrawals from a traditional IRA are taxable and will increase your adjusted gross income, but withdrawals from a Roth IRA will be tax-free, provided you’ve had your account at least five years and you’re older than 59½, so this money won’t enter into your taxable income calculations and it won’t increase the tax you owe on your Social Security benefits. And withdrawals from health savings accounts (HSAs) used for qualified health expenses also won’t count toward your taxable income. By knowing exactly what to expect from Social Security, including the tax effects, you can more effectively incorporate your benefits into your overall retirement income planning – and the better your plans, the more you’ll be able to enjoy your life as a retiree. This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.

Edward Jones, Member SIPC

Edward Jones is a licensed insurance producer in all states and Washington, D.C., through Edward D. Jones & Co., L.P., and in California, New Mexico and Massachusetts through Edward Jones Insurance Agency of California, L.L.C.; Edward Jones Insurance Agency of New Mexico, L.L.C.; and Edward Jones Insurance Agency of Massachusetts, L.L.C. California Insurance License OC24309

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