June 28, 2024 By: Lauren Owoc Social Security benefits are a key source of income for many retirees, but there’s always that one question that needs to be answered: Is Social Security taxable? Our informative video, “Your Net Worth In Focus: Is Social Security Taxable?”, cuts through the confusion. Join KatzAbosch’s financial experts, Lauren Owoc and Rebecca Hammond, for a clear explanation of Social Security taxes. Learn how your filing status and income affect whether your benefits are taxed, explore strategies to minimize your tax burden, and discover how state taxes come into play. The video even tackles the age question: when to claim benefits to maximize your Social Security income while minimizing taxes. Transcript – Your Net Worth In Focus: Is Social Security Taxable? Rebecca Hammond: Hi, I’m Rebecca Hammond. Welcome to “Your Net Worth In Focus,” a video series committed to answering personal financial planning questions. I’m here today with my colleague Lauren Owoc. As seasoned service professionals, we provide a full range of accounting, tax, and advisory services to closely help businesses and individuals. As members of KatzAbosch’s personal financial service group, we both specialize in protecting and maximizing individuals’ financial legacies. Lauren Owoc: Hi everyone, thanks for listening today. Social Security benefits can be an important source of cash flow in retirement, and the amount you will receive is directly affected by the decisions you make leading up to retirement. Today, we want to provide a little more insight on some of the more frequently asked questions we receive regarding the taxation of Social Security benefits. Rebecca Hammond: Sure, let’s first start with how you determine if your Social Security is taxable. Lauren Owoc: You can do this by adding up your gross income for the year, including Social Security. If you have little or no income in addition to your Social Security, you won’t owe taxes on it. However, for most individuals, this is not the case. If you’re a single filer and had at least $25,000 in gross income, including your Social Security for the year, up to 50% of your Social Security benefits may be taxable. For a couple filing jointly, the minimum is $32,000. If your gross income is $34,000 for single or $44,000 for joint or more, up to 85% may be taxable. Rebecca Hammond: So, if Social Security benefits count as income, how can an individual minimize taxes on their Social Security benefits? Lauren Owoc: You can minimize the amount you owe each year by making some wise moves before and after you retire. Consider investing some of your retirement savings in a Roth account to shield your withdrawals from income tax. Take out some retirement money after you’re 59 and a half but before you retire. You take care of the taxes before you need the money, and you may talk to a financial planner about retirement annuities. Rebecca Hammond: Okay, thank you, Lauren. Another question you receive is in regards to state and local taxes. Does an individual have to pay state and local taxes on Social Security benefits as well? Lauren Owoc: Currently, as we tape this, 37 states do not impose local taxes on your Social Security benefits. The other 13 states tax some recipients under some circumstances. The states are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. If you live in one of these states, I highly recommend reading the AARP link provided below, which will shed more light on each state’s policies. Rebecca Hammond: Awesome. And the last question for today is, does age play a role in minimizing the tax burden? Lauren Owoc: That’s a great question and a complex one. The bottom line is that most advice on Social Security benefits focuses on when you should start taking benefits. The short answer these days is to wait until you’re 70 if possible to maximize the amount you get. But there’s another big consideration, which we discussed today, and that’s how to prevent income taxes from taking a big bite out of your Social Security benefits and overall retirement income. And the answer to that is to plan well in advance to minimize your overall tax burden during your retirement years. This plan, of course, varies for everyone’s situation. Rebecca Hammond: For more details on this topic, please join us for our January 18th webinar where KatzAbosch experts will present all you need to know about maximizing your Social Security and all the related tax changes that could impact you and your family. To register, click on the link provided below in the video description area. Thank you, Lauren, for answering some of the frequently asked questions we receive regarding the taxation of Social Security benefits. As a reminder, your financial planning is unique to your personal wealth goals, so please be mindful that these are top-level suggestions, and you should always consult your advisor before making any changes. Thank you, and we look forward to seeing you at the more in-depth webinar next month. Click here to view an on-demand version of our webinar, Social Security: How to Maximize Benefits. Take Control of Your Financial Future Social Security is just one piece of the retirement puzzle. If you still have questions about whether your Social Security is taxable or need help with financial planning, our experts can help you develop a personalized tax strategy, invest for retirement, and navigate other financial decisions. Contact us today to get started on a secure financial future. Article by: Lauren Owoc, CPA Lauren joined the firm in 2015 and has been working in public accounting since 2011. She specializes in not-for-profit compliance and consulting, high net-worth individual taxation, and partnership and real-estate taxation. Lauren leads the not-for-profit tax practice area within the firm. She coordinates the application process and annual tax compliance functions of more than 60 not-for-profit clients, including private and family foundations.
