Many individuals start thinking about retirement at age 63 and wonder how social security will work once they are no longer working.
Some people have to pay federal income taxes on their social security benefits. This usually happens only if they have other substantial income such as wages, self-employment, interest, dividends and other taxable income that must be reported on their tax return in addition to their benefits. Based on IRS rules, no one pays federal income tax on more than 85 percent of their social security benefits.
Each January retirees will receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of benefits they received in the previous year. If they do have to pay taxes on their social security benefits, they can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from their benefits. If you have questions, contact us; we can help you determine how retirement will impact your tax situation.