Determining whether or not you have to pay taxes on your Social Security benefits really comes down to two factors: 1) your tax filing status, and 2) the amount of your "combined" income. Generally speaking though, you will not have to pay any taxes on your Social Security benefits at all, if that is your only source of income.
The rule being individuals will not have to pay if your "combined" income is less than $25,000 filing as an individual, or $32,000 as a joint filer. If your "combined" income is over that threshold, continue reading below to calculate exactly your combined income, and to determine at what rate you will be taxed at on your SS benefits, as well as how to receive a copy of your SSA-1099 form.
Calculating Your "Combined" Income
Your combined income is a simple equation the government uses to determine (in this case) how much you might owe for Social Security benefits taxation. The equation goes like this:
Adjusted Gross Income + Nontaxable Interest + Half of your Social Security benefits = Combined Income
If you want to calculate this amount most accurately, use the IRS Social Security and Equivalent Retirement Benefits online booklet. Once there, go to the section labeled: Worksheets, and use Worksheet 1. Figuring Your Taxable Benefits to determine the exact amount.
Another tool to approximate your Social Security tax is from CalcXML. This is an unofficial online calculator, where you provide your tax filing status, marginal tax bracket, how much in benefits you received for the year, as well as several boxes to calculate your adjusted gross income, all to determine what SS taxes you should expect. Again, this is an unofficial calculator, but works well to give you an approximation and can be done very quickly.
Also of note: Every year, the IRS will send you a SSA-1099 tax form, if you've received Social Security benefits. On this form, it will let you know the total amount of benefits you received for the previous tax year. If you do not have or misplaced this form, don't worry. You can get a new one through a myriad of ways, by either logging into your online account, contacting your local SS office, or by simply giving them a call at 1-800-772-1213.
Determining Your Social Security Benefits Tax Rate
If you have other sources of income beyond Social Security benefits, use this chart to determine the amount you can be taxed at, if your combined income reaches above a certain level. This is where your filing status comes into play..
If you file a federal tax return as an 'individual' and your combined income is:
-- between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
-- more than $34,000, up to 85 percent of your benefits may be taxable.
If you file a joint return, and you and your spouse have a combined income that is:
--between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
--more than $44,000, up to 85 percent of your benefits may be taxable.
If you are married but file separately, you probably will pay taxes on your benefits as well.
Lastly, keep in mind that some states also have a state Social Security tax in addition to the Federal tax. Tax Foundation's State Income Taxes on Social Security Benefits is a great reference. Use their chart to determine if you need to set aside any extra for the state that you live in as well.