Retirement Primer – Do You Have To Pay Taxes On Social Security Benefits?
The great Boomer migration is underway. What am I talking about? The Boomer migration refers to all the Baby Boomers that are starting to retire. Part and parcel to retirement is the payment of social security benefits. The money is not huge, but it can help out. The question for most Boomers is whether they have to pay taxes on it.
For years and years, you’ve been paying into social security with every paycheck. The government thanks you for doing so! While saving for your retirement, you also gave the federal government a pool of money to borrow from to pay for other things. Alas, that is a subject for another article. Now that you are retiring, it is time to reap the benefit of all those payments.
So, are the social security checks taxable? The answer is yes, but maybe not as badly as you might think. This being a tax subject, the issue is handled through the IRS. You know what that means – forms and worksheets! The appropriate form is actually part of your basic 1040. A worksheet is included to figure out the taxability issue. The worksheet is a dozy. It contains no less than 19 lines of information to be figured out. The lines involve such issues as the total you received from social security, the total income you received from other sources, multiplication, subtraction, quantum physics. Okay, maybe not quantum physics, but you get the idea.
At the end of the day, you are going to end up paying income tax on your social security benefits. The exact amount is usually a percentage of the total you received during the year. What that percentage is depends entirely on your financial situation.
The social security system is rather amazing when you think about it. You pay into it for 40 years or so. You then get a nominal check each month for all your contributions when you finally retire. To thank you, the government requires you to pay taxes on that amount as well!
