Social Security Taxes for Singles is crazy. Know the rules!…(read more)
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Social Security Taxation for Single Taxpayers
Social Security is a government program that provides financial benefits to eligible individuals, including retirees, disabled workers, and survivors of deceased workers. To fund this program, the government imposes a tax known as the Social Security tax. Understanding how this tax affects single taxpayers is vital for individuals who fall into this category.
The Social Security tax is based on a fixed percentage of an individual’s earnings, and it is separate from income tax. For single taxpayers, the tax is calculated based on their gross income, which includes wages, self-employment income, and certain other forms of compensation. However, not all income is subject to the Social Security tax. In 2021, the tax applies only to the first $142,800 of earned income. Any income above this threshold is not subject to the tax.
The tax rate for Social Security is currently set at 6.2% for both employees and self-employed individuals. This means that single taxpayers are required to pay 6.2% of their eligible earnings up to the income limit. Employers match this contribution, making the total Social Security tax rate 12.4% for employees and self-employed individuals.
For single taxpayers, it is important to note that Social Security taxes are generally withheld automatically by employers. These withheld amounts are reported on the employee’s W-2 form and are used to calculate their annual tax liability. If an individual is self-employed, they are responsible for calculating and paying their own Social Security taxes as part of their self-employment tax.
Understanding how Social Security taxes can impact single taxpayers is crucial, especially when it comes to planning for retirement. The benefit amount a person receives from Social Security during their retirement is based on their average indexed monthly earnings throughout their career. The more a person earns, the higher their future Social Security benefits will be. By contributing the required amount of Social Security tax during their working years, single taxpayers can help ensure a more stable and secure retirement.
However, it’s worth noting that Social Security benefits may be subject to taxation for some single taxpayers. The extent to which benefits are taxable depends on an individual’s provisional income, which is calculated by adding up the taxpayer’s adjusted gross income, tax-exempt interest, and half of their Social Security benefits.
If a single taxpayer’s provisional income exceeds certain thresholds, a percentage of their Social Security benefits becomes taxable. These thresholds are currently set at $25,000 for single taxpayers, and those with provisional income between $25,000 and $34,000 may have up to 50% of their benefits subject to taxation. Single taxpayers with provisional income exceeding $34,000 could have up to 85% of their benefits taxed.
In conclusion, Social Security taxation affects single taxpayers in multiple ways. Single taxpayers are required to pay a fixed percentage of their eligible earnings, up to a yearly income limit, for their Social Security benefits. It is important for single taxpayers to understand their tax obligations and plan for their retirement accordingly. Additionally, some single taxpayers may find that their Social Security benefits are subject to taxation depending on their provisional income. By staying informed and making strategic financial decisions, single taxpayers can maximize their Social Security benefits while ensuring compliance with the relevant tax regulations.
Thank You so muck!!!!!!!!!!!!
So confusing makes zero sense
Plus need to be careful about Medicare part B premiums,
In your example, would the SINGLE person be better off taking her IRA for a year or 2, before she even starts collecting her SS?
Silver is where the smart money is
Josh makes sense to me ☺️! That's why my traditional IRA will be QCD to Shriners. I'll only draw down my Roth IRA and non retirement brokerage account. I have 2 pensions.
If I have an option from my company pension plan to either receive an Annuity or take a Lump Sum, which would you recommend?
I'm 63 & plane to retire in 2 years.
I also have a company 401k plan, an individual IRA and a ROTH IRA.
I make $32k calpers
And $18k SS
So my provisional income is $41k ?
So my SS is subject to taxes ?
Thx
Does she "need" the $25K from the IRA? If not what I would do is take the amount out of the IRA that would net me -0- income tax. Easy enough to play with the numbers IMO. What I do every year with my Roth conversion from my IRA. Tax avoidance planning IMO.
RMD tax consequences are reduced if you end up in a nursing home and can deduct those expenses from taxable income
Josh great video! Love the low-tech approach (white board and magic marker).
Hey @Josh, i have 22 years till FRA @67, and my AIME is currently $4.5mil, which has me hitting the max monthly SS payout today. Assuming I don't work again, does this monthly payout keep up with inflation or will the payout today be worth far less in 22 years?
@HWP, your SS taxation videos are always riveting.
Considering ther was no tax planning in her retirement withdrawal strategy having to pay a 6% effective tax rate on a 61k income for a single is still pretty good.
Thanks!! I’m in a similar situation. Delay SS and take out / roll over to Roth first.
An earlier video you did here on this same taxation issue for a single person (me)was instrumental in making me understand how all of this works to my benefit. Case in point, when my very small pension started and I also bought an immediate annuity I wisely chose not to have any money taken out of the $9075 total sum I was to receive in guaranteed income due to Trumps magnificent tax bill . In fact this year I pulled 7500k out of my 401k that had 20% automatically with held (per federal law) for a new roof and even with my annuity, pension, generous SS, and 401K withdrawal I will actually get back around $1002 back of that $1500 that was taken out as taxes when I file next February. Total win!!
I'm in a situation similar to the example you used, Josh, and the only way it makes any sense (IMO) is if the IRA distribution/withdrawal is used to do a conventional IRA to Roth IRA conversion, instead. Then the huge tax bite only happens once, and never again.
You said the provisional income includes Tax Exempt Interest. Would it also include Roth IRA/Roth 401k distributions?
Yay single person. I would probably convert 15,000 per year.
I've missed these kinds of tutorials…glad to see them back. It would seem that with the Trillions of dollars being spent that we will have no option but to have higher tax rates in the future…if you accept that premise, then taxes of 3,700 on 60k of income is a great deal. We have a HUGE tax burden coming down the road, if I were 67, I'd take this deal everyday.
Josh,
Good information – That is why you want to delay taking your social security money and do ROTH conversions from your IRA each year until you are 72 when RMD’s kick in … assuming you have enough to survive on without social security funds , and you don’t have health issues that could shorten your life expectancy,
When she took 25k from the IRA they should took 10 percent out for tax
Solid info! Love the insight.