Top 10 Social Security Tax Questions

There were several programs established by the Social Security Act to ensure individuals with disabilities and people who retire have supplemental income. 

It also established a program for survivors to receive a death benefit. Supplemental income from Social Security keeps more than 40% of the elderly population out of poverty. With all of the changes and amendments made since 1935, the tax implications are complicated for individuals and employers. 

The following are 10 common tax questions related to Social Security:

  1. Are Social Security benefits taxed? In some cases, benefits may be subject to federal income tax. If the benefits are a person’s only source of income, they are not likely to be taxed. However, people who have additional income will usually be subject to the federal income tax.
  2. Are there base amounts for benefits? The base amounts are determined by a person’s filing status. The base amount for a married couple filing jointly is $32,000. For married couples filing separately who live together, it is $0. The base amount is $25,000 for all other taxpayers.
  3. What portion of benefits is subject to income tax? If an individual adds his or her income to half of the total received benefits and it exceeds more than the base amount, up to 50% of that individual’s benefit will be counted as gross income.
    The base amounts are the same as those listed in the previous paragraph. However, if the person’s income exceeds $40,000 for married filing jointly status, $0 for married filing separately status or $25,000 for all other taxpayers, up to 85% of the total amount of benefits must be counted as gross income. 
  4. Are workers’ compensation benefits counted as Social Security on tax forms? Yes, workers’ compensation benefits are counted as Social Security since they cause a reduction in the tier I category for disability benefits.
  5. Why does adjusted gross income include non-taxable interest? This is done to limit the chances of manipulation on someone’s tax liability benefits.
  6. What are the usual reporting requirements from the Social Security Administration? Information must be sent to each beneficiary on an annual basis that shows any repayments from the beneficiary and any reductions of benefits.
  7. How are typical lump-sum retroactive benefits and over-payments taxed? Any benefits paid to an individual are reduced by over-payments that are repaid. Retroactive lump-sum payments are treated as payable during the year when they were received. Any benefits received before 1984 are not taxable.
  8. Are income taxes withheld from Social Security benefits? Withholding is allowed but it is voluntary. Benefit recipients can submit a Form W-4 if they wish to have federal income taxes taken directly out of their benefits.  Withholding can be chosen at several different percentage rates up to 25% of the total benefit payment.
  9. How are Social Security taxes reported for domestic help? The 2019 threshold for coverage of a domestic worker was $2,100. Always check current rules for updated threshold amounts. Any wages paid to domestic workers under the age of 18 are exempt from Social Security taxes. Being a student is classified as an occupation.
  10. If a person receives wages as an employee but is also self-employed, how much income is subject to self-employment income tax? The difference between the base of maximum earnings and the wages earned as an employee is the amount that is subject to taxation as self-employment income.  If the net earnings from self-employment income are more than $434, no self-employment tax is due. However, the amount that is considered taxable may be less than $400 in some cases.

Still have questions?

There are many other common concerns related to Social Security taxes and benefits. To learn more or for answers to other questions, feel free to call us. 

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