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TAX ALERT: YOUR SOCIAL SECURITY BENEFITS ARE SUBJECT TO FEDERAL INCOME TAX

TAX ALERT: YOUR SOCIAL SECURITY BENEFITS ARE SUBJECT TO FEDERAL INCOME TAX

TAX ALERT: YOUR SOCIAL SECURITY BENEFITS ARE SUBJECT TO FEDERAL INCOME TAX

If you are retired or looking forward to retirement, you are probably going to receive Social Security benefits. Many people are surprised to find out that your benefits are actually taxable. Some people will pay taxes on Social Security and others will not. It all depends on your total income, including your Social Security benefits.

Since April 15 is almost upon us, here is a breakdown of how you might be taxed on your benefits:

First, the good news: If your entire income is made up of your Social Security benefits, you will most likely not have to pay taxes on your benefits. In fact, you may not even need to file a Federal income tax return. Consult your financial advisor to determine if you need to file.

However, if you have additional income, these are the guidelines:

For single filers, the first $25,000 isn’t taxed. For combined income (Social Security plus other income) between $25,000 and $34,000, up to 50 percent of Social Security benefits may be subject to ordinary income taxes. For income above $34,000, up to 85 percent of benefits may be taxed.

Note: Here is how the IRS defines combined income: This includes one half of your Social Security benefits plus all of your other income (salary, wages, dividends, interest, retirement account distributions, etc.), and it even includes your tax-exempt interest.

For married filing jointly, the first $32,000 isn’t taxed. For combined income between $32,000 and $44,000, up to 50 percent of Social Security benefits may be taxable. For income above $44,000, up to 85 percent of benefits may be taxed.

These guidelines do not change as the recipient ages. The tax on Social Security benefits is based solely on income.

The IRS provides form W-4V if you would like to have taxes withheld from your Social Security benefits. You are allowed to withhold 7, 10, 12 or 22 percent. Before you decide if or how much to withhold, consult your tax advisor to determine if it is necessary for you to do so. The IRS allows you to change your percentage withheld or to cancel the withholding, also by filling out form W-4V.

The good news for those of us who reside in Louisiana is that our state does not tax Social Security benefits, while some other states do So, Social Security benefits that are taxed on your federal return may be excluded from Louisiana taxable income.

Since an ever-increasing number of Americans continue to work past their full retirement age, the above information is especially important. Many Social Security recipients still believe their benefits are not taxable, but this is a misconception. Be aware you can file quarterly estimated tax returns if you choose to do so.

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