From the Financial Hotline
By: Financial Hotline
Winter 2021 (Vol. 38, No. 4)
Q: Do I owe taxes on social security income?
A: Your income and filing status affect whether you must pay taxes on your Social Security. An easy method of determining whether any of your benefits might be taxable is to add one-half of your Social Security benefits to all of your other income, including any tax-exempt interest.
Next, compare this total to the base amounts below. If your total is more than the base amount for your filing status, then some of your benefits may be taxable. For tax year 2020, the three base amounts are: $25,000 for single, head of household, $32,000 for married couples filing jointly and $0 for married persons filing separately who lived together at any time during the year.
If you are filing an individual federal tax return and your combined income (adjusted gross income + nontaxable interest + 1/2 of your Social Security benefits) is between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits. If it is more than $34,000, up to 85 percent of your benefits may be taxable.
If you are filing a joint federal tax return and you and your spouse have a combined income ((adjusted gross income + nontaxable interest + 1/2 of your Social Security benefits) that is between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits. If it is more than $44,000, up to 85 percent of your benefits may be taxable. Married taxpayers filing separate tax returns generally pay taxes on their full benefits.
Q: Do I owe I turned 65 last year. Are there any additional tax benefits that apply now that I am a Senior Citizens?
A: Yes, here are some you may be able to claim:
- If you and/or your spouse are 65 years old or older and do not itemize your deductions, you can take advantage of a higher standard deduction amount. There is an additional increase in the standard deduction if either you or your spouse is blind.
- Filers who are either 65 years or older--or under
age 65 years old and are permanently and totally
disabled--may be able to take the Credit for Elderly
or Disabled. You can take the credit only if you
meet the following:
In 2020, your adjusted gross income (AGI) must be less than $17,500 ($20,000 if married filing jointly and only one spouse qualifies), $25,000 (married filing jointly and both qualify), or $12,500 (married filing separately and lived apart from your spouse for the entire year) Plus, the nontaxable part of your Social Security or other nontaxable pensions, annuities, or disability income is less than $5,000 (single, head of household, or qualifying widow/er with dependent child); $5,000 (married filing jointly and only one spouse qualifies); $7,500 (married filing jointly and both qualify); or $3,750 (married filing separately and lived apart from your spouse the entire year).
- Retirement Account Limits Increase. Once you reach age 50, you are eligible to contribute (and defer paying tax on) up to $26,000 in 2020 (and in 2021). The amount includes the additional $6,500 “catch up” contribution (2020 and 2021) for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan.
- Once you reach age 59 1/2, there is no longer a penalty for early withdrawal from your IRA. Furthermore, if you leave or are terminated from your job at age 55 or older (age 50 for public safety employees), you may withdraw money from a 401(k) without penalty. You will, however, still have to pay tax on the additional income.
- Taxpayers who are 65 and older are allowed an income of $1,650 more ($2,600 married filing jointly) in 2020 before they need to file an income tax return. In other words, older taxpayers age 65 and older with income of $14,050 ($27,400 married filing jointly in 2020 or less may not need to file a tax return.