The Social Security benefits are governed under the federal rule and are mostly funded by the social security taxes collected through the Federal Insurance Contribution Act, FICA.
The benefits taxable under social security taxes may include but are not limited to monthly retirement, survivor and disability benefits. They would not be considered for benefits you receive on behalf of a dependent, such as an ex spouse collecting benefits for the minor child of the disabled person. Also the supplemental security income, SSI would not be considered for taxation. This is because SSI is granted vigorously on only need-based basis. So people who could not afford taxes are actually those who are mostly granted the SSI in the first place.
How are my benefits taxed?
The amount of benefits on which you are taxed would solely depend on the amount of income you earn. This income would only be considered if it is being earned by you through work or some assets such as mortgage. However, any other income contributed to the household by other means, such as income from another family member or income from a trust named after your children would never be considered for social security taxation.
Also, a tip to reduce the amount of taxes on your social security if you are married is to file your taxes as joint filers instead of as individuals. This means that if you are married and are a joint filer, then the percentage of social security taxation would be almost 10-15% of 50% of your benefits provided that the total annual income for both of you is less than $44,000. Couples with higher incomes such as those with annual income thresholds above $44,000 would be subject to a 30-35% on 85% of the social security benefits.
Similarly, the amount of social security taxation on individual filers would depend on their marginal incomes instead of a direct percentage of their social security benefits. For instance, if you are an individual tax filer with an annual income below $25,000 then you may simply be exempted from social security taxation. For income between $25,000 to $35,000 with an approximate monthly income between $2084 and $2833, you will be taxed almost 30-35% on 50% of your benefits. However, if you have a higher monthly income above $2834 leading to an annual income threshold above $25,000 then you may be subjected to higher taxes such as 30-35% on 85% of your social security benefits.
The tax rates for any of the income thresholds and tax statuses (single filer or joint filer) will be the same as any other federal tax rate.
Higher taxes on lump sums
You may receive a lump sum or backpay payments in instances where you were disabled but not yet approved to receiving benefits. In this case, if you do qualify for social security eventually, you may be facilitated for the months you were not provided the socials security benefits. These benefits will be paid in a single lump sum. Therefore, the larger sum would be subject to a larger taxation. However, the tax rates on the lump sum would be the federal tax rates that applied to other people during the year or months your benefits were not yet granted (due to the reason stated above).
State taxations on social security insurance benefits
Almost every state has its own laws governing social security taxes. While some states may never subject social security disability insurance benefits to taxation. You may consult a social security attorney to find out your state’s taxation policies for social security benefits.