The process of saving for retirement is one of the most difficult undertakings many of us will ever do, even when we have Social Security to assist us.
Depending on your situation, these perks could be worth thousands of dollars each month — if you are able to keep it all. However, this is not the case for all people.
If you live in one of the 13 states that deduct a portion of your Social Security payments, you could be liable for taxes on up to 85 percent of your annual benefits if you get Social Security benefits.
However, in some instances, it may be possible to avoid this. Here’s all you need to know about the situation.
Social Security payouts are not taxed in these 37 states.
It does not need to worry if you live in one of the following 37 states about your state government removing a portion of your Social Security benefits:
New Hampshire is a state in the United States.
New Jersey is a state in the United States.
New York is the capital of the United States.
North Carolina is a state in the United States.
South Carolina is a state in the United States.
South Dakota is a state in the United States.
However, being in one of these states does not guarantee that you will be exempt from benefit taxes totally.
According to their tax filing status and provisional income, the federal government may also tax a portion of some Social Security benefits received by some recipients.
In this calculation, adjusted gross income (AGI) is equal to your taxable income plus any nontaxable interest and half of your Social Security payment.
In the case of a single adult with provisional income over $25,000 and a married couple with provisional income exceeding $32,000, you could owe taxes on up to 50% of your Social Security payment.
Furthermore, if your provisional income is larger than $34,000 for a single adult or $44,000 for a married couple, you may be liable for taxation on up to 85 percent of your benefits received.
However, just because you have the potential to owe that much money does not ensure you will. More information on how the federal government calculates Social Security benefit taxes can be found in the following guide.
Social Security payouts are taxed in these thirteen states.
If you live in one of the thirteen states mentioned below, you may be liable for state taxes on a portion of your Social Security benefits:
New Mexico is a state in the United States.
North Dakota is a state in the United States.
West Virginia is a state in the United States.
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However, it is possible that you may not owe anything. Each state has its own set of rules that define who is required to pay benefit taxes and how much of their paychecks are subject to taxation in that state.
For example, in Kansas, you only have to pay taxes on your benefits if your adjusted gross income (AGI) is more than $75,000, regardless of your filing situation.
Other states have laws that are comparable to this one.
Check with your state’s Department of Taxation to learn more about the regulations governing Social Security benefit taxes if you live in one of the states listed above, or if you plan to retire in one of the states listed above.
Is it possible to avoid having to pay taxes on your Social Security benefits?
When taking retirement withdrawals, it is feasible to avoid state and federal Social Security benefit taxes in some situations by carefully structuring your withdrawals.
Alternatively, if you find yourself on the verge of exceeding the income threshold for benefit taxes, you can either cease taking money out of your retirement accounts for the remainder of the year or limit your withdrawals to Roth savings exclusively.
Because you paid taxes on your contributions when you made them, Roth withdrawals do not count against your taxable income when you take them out.
However, there are occasions when avoiding benefit taxes is simply not an option. In the event that you anticipate owing money, the next best thing to do is make a financial plan.
Make a rough estimate of how much you would owe, and make a point of setting aside that amount in your budget each year.
Keep an eye out for any changes that the government makes to Social Security, as they could have an impact on how much money you owe in taxes.
The $18,984 Social Security benefit that the majority of retirees fail to take advantage of
When it comes to retirement savings, if you’re like the majority of Americans, you’re a few years (or more) behind.
However, a few little-known “Social Security secrets” may be able to assist you in ensuring a raise in your retirement income.
For example, one simple method might result in you earning up to $18,984 more every year… if you do it consistently!
We believe that if you understand how to optimize your Social Security benefits, you will be able to retire securely and with the peace of mind that we all desire.