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MILLIONS of Americans are soon set to lose their Social Security benefits due to income limits.
While there are some states that don’t tax Social Security checks, the IRS is able to look at a few key limits to decide how much money they can take.
While there are some states that don’t tax Social Security checks, the IRS is able to look at a few key limits to decide how much money they can take[/caption]
Tax season can be difficult, and there are lots of little-known tips and tricks that allow you to save on some of your Social Security payments being taxed.
The main things the IRS looks at is your marital status and income level, plus any interest you might have if you own municipal bonds, and half your annual Social Security benefit.
For example, if you earn under $25,000 a year and are not married, the IRS is not eligible to tax any of your Social Security.
At the other end, if you earn more than $44,000 and you are married, the IRS can take up to 85%.
But the bracket you fall into determines what percentage of your benefits will be subject to ordinary income tax.
If you’re in the 22% income tax bracket you’d pay 22% tax on up to 85% of your benefits.
As average incomes rise, along with benefits like Social Security, more seniors are finding themselves creeping into the taxable brackets.
To combat this, there are a couple of things seniors can do.
WHAT TO DO
If you’re concerned, you can contact the IRS directly to talk about setting up a payment plan.
You may be able to reduce the Social Security benefit taxes you owe by limiting your taxable retirement withdrawals.
This means every time you take a lump sum of cash from your pension, a portion of that will be tax free.
This is normally set at around 25%, but will vary depending on your pension plan.
You can also request that the IRS withhold money for taxes from your Social Security checks up front.
This would save you the hassle of having to figure out how much you owe on your own.
Simple things like these can not only save time but precious pennies when it comes time to file.
MORE METHODS
The U.S. Sun recently reported on how to beat the delays when filing if you have questions for the IRS.
Again, these are simple steps that often go unheard of.
If you file your tax return electronically, the IRS says it should take 21 days or less to receive your refund.
Using the online tool Where’s My Refund?, you can check the status of your income tax refund within 24 hours of e-filing and generally within four weeks of filing a paper return.
You will need your Social Security number or your induvial taxpayer ID number, your filing status and the refund amount calculated on your tax return.
HOW TO SUPPLEMENT YOUR SOCIAL SECURITY
Here's how to supplement your Social Security:
Given the uncertainty surrounding Social Security’s long-term future, it’s essential for workers to consider ways to supplement their retirement income.
Senior Citizens League executive director, Shannon Benton recommends starting early with savings and investing in retirement accounts like 401(k)s or IRAs.
- 401(k) Plans
- A 401(k) is a retirement account offered through employers, where contributions are tax-deferred.
- Many employers also match employee contributions, typically between 2% and 4% of salary, making it a valuable tool for building retirement savings.
- Maxing out your 401(k) contributions, especially if your employer offers a match, should be a priority.
- IRAs
- An Individual Retirement Account (IRA) offers another avenue for retirement savings.
- Unlike a 401(k), an IRA isn’t tied to your employer, giving you more flexibility in your investment choices.
- Contributions to traditional IRAs are tax-deductible, and the funds grow tax-free until they are withdrawn, at which point they are taxed as income.
To skip phone lines, other online tools like the Interactive Tax Assistant are available that can provide answers to your individual circumstances.
The IRS has also has online check lists that can help you track your progress when filing so you don’t miss anything out.
Free File Fillable Forms are also available at no cost to any financial level.
These provide electronic forms that people fill out and file themselves.
And if the process sounds too much, you can find a skilled tax expert who can file for you.
For this, you should visit the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.
The main things the IRS looks at is your marital status and income level[/caption]
