Sign up for our FREE Monthly Email Newsletter
In addition to keeping in the financial know, you may be interested in checking your credit score and report.
¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.
²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.
³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.
4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.
Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.
That sounds like such a simple question, doesn’t it? The answer should be either “yes” or “no.”
But I’m talking about the U.S. Income Tax Code, so of course it’s not that easy. In fact, the correct answer is both “yes” and “no.”
First let me make one thing clear: The tax rules are the same for regular Social Security benefits and for Social Security disability benefits, also called Supplemental Security Income (SSI). For simplicity’s sake, I’ll call both types Social Security benefits.
When your Social Security benefits are not taxable
This is relatively simple. As of the 2014 tax year:
Your total income includes things that are not normally taxable: non-taxable interest, employer-provided adoption benefits, foreign earned income or foreign housing, and income earned by bona fide residents of American Samoa or Puerto Rico.
When your Social Security benefits are taxable
Once your total income plus half of your Social Security benefits exceeds $25,000 (for single people) or $32,000 (for married couples), you pay tax on up to 85 percent of your benefits. However, if you’re married and filing separately, you lose that $32,000 allowance and 85 percent of your Social Security benefits are immediately taxable.
You don’t pay 85 percent of your benefits as tax, but this amount does get added to your income. That means when you are just one dollar past the previously mentioned dollar limits, your tax rate can skyrocket from 0 percent to 20 percent or otherwise more very quickly.
Test this out in your tax software. Include your normal taxable income and see what your taxes are. Then, add in your Social Security benefits and watch your taxes soar. It’s quite shocking.
You can read more about this and find useful worksheets in IRS Publication 915.
(Read more: How Do I Figure Out My Tax Bracket?)
Taking benefits early
Many people opt to start collecting their Social Security income at age 62, or below their target age. Often, after starting to collect early, they realize they can’t live on the reduced benefits—or they go crazy with boredom—and start to work. This can cause some tax complications.
Your wages or self-employment earnings are limited to $15,480 for the year 2014. For every $2 you earn over that limit, $1 of your Social Security income will be withheld. (You can read this brochure from the Social Security Administration for more information). This means if you work and collect your benefits early, you will increase your taxable income and have to pay back a portion of your Social Security benefits.
Before applying for Social Security benefits, make sure you understand how they work and how they affect your taxes. Consider your life expectancy—if you’re expecting to live into your 80s and 90s, take your benefits later. If you’re only expecting to live until 70, start cashing in as soon as you can.
Whatever you do, focus on enjoying life—today!
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.