10 Tips to Get the Most Out of Your Social Security Income

Whether you are a single filer or filing jointly, your Social Security income might be taxed if you have other sources of retirement income.

The limit for single filers is $25,000 and for joint filers is $32,000. Any amount filed above these limits will be taxed.

The amount of taxes you will pay on your Social Security benefits depends on your total combined retirement income. Regardless of the total, you won’t pay more than 85% of your Social Security income.

For the 2021 tax year, single filers with a combined retirement income of $25,000 to $34,000 must pay income taxes on up to 50% of Social Security benefits. If your combined retirement income exceeds $34,000, you’ll pay Uncle Sam up to 85% of your Social Security benefits.

Married couples filing jointly will pay taxes on up to 50% of their Social Security income if they have a combined income of $32,000 to $44,000. If the combined income exceeds $44,000, Uncle Sam will expect taxes on up to 85% of the Social Security benefits.

If 50% of your Social Security benefits are subject to tax, the amount you include in your taxable income will be the lesser of either a) half of your yearly Social Security benefits or b) half of the difference between your combined income and the IRS base amount.

Once you calculate the amount of your taxable Social Security income, you’ll need to enter that amount on your income tax form. Find the total amount of your benefits. This will be in box 3 of your Form SSA-1099. Then, on Form 1040, write the total amount of your Social Security benefits on line 5a and the taxable amount on line 5b.

To withhold taxes from your Social Security benefits, you’ll need to fill out the seven-line Form W-4V, called the Voluntary Withholding Request. Enter your personal information and then select one of four withholding options: 7%, 10%, 12%, or 22% of your monthly benefit. After you have completed the form, mail it to the nearest Social Security Administration office or drop it off there.

You can also file estimated tax payments instead of having the SSA withhold taxes. Estimated payments are tax payments you make four times a year on income that an employer is not required to withhold tax from.

A Roth IRA is an effective way to reduce your tax liability in retirement. With a Roth IRA, you pay taxes on the money before contributing it to your Roth IRA and you won’t pay any taxes when you withdraw your contributions. You also don’t have to pull out the funds by any specific date once you retire. This is different from traditional IRAs and 401(k) plans, which require you to begin withdrawing money when you turn 72.

Many retirement plans allow those who are 50 years old and over to make what are called annual catch-up contributions. You are allowed to make catch-up contributions up to $1,000. These contributions must be made by the due date of your tax return and applied to your 2021 Roth IRA contribution total.

There are 12 states that collect taxes on at least some Social Security income. Two of those states – Minnesota and Utah – follow the same tax rules as the federal government. That means that if you live in one of those states, you’ll pay the state’s regular income tax rates on all of your taxable benefits, up to 85% of your benefits. The other 10 states also follow the federal rules but have deductions or exemptions based on your age or income. In those states, you probably won’t pay tax on the full taxable amount.

The remaining 38 states and Washington, D.C. don’t tax Social Security income.

One way to save in retirement is to downsize your home. Moving to a smaller house could lower your property taxes. This could make a difference in high property tax states such as New Jersey, and it could also lower utilities costs.

According to data from Transamerica Center for Retirement Studies, 31% of retirees use a financial services professional to help manage their finances. Think about hiring a financial advisor who can help navigate the complexities of saving and preparing for retirement.