A very common question we are asked at Barber Financial Group is if Social Security is tax free.
The quick answer is: If the only income you have is Social Security you will not pay any taxes on your Social Security. However, If you have other sources of income you could be paying taxes on as much as 85% of your Social Security.
Before we explain how your Social Security is taxed, you must first understand what “Provisional Income” is. Provisional income is used by the IRS to determine if you’ll be paying taxes on your benefit or not. It is calculated by taking 50% of your combined Social Security payments and adding to that any other source of taxable income plus any tax-free income from municipal bonds.
Here’s how it works.
During the Reagan Administration, the laws were changed so that a married couple filing a joint tax return, who had over $32,000 of provisional income, would pay taxes on up to 50% of their Social Security.
During the Clinton administration that law was expanded so that married couples filing a joint tax return with over $44,000 of provisional income could pay taxes on as much as 85% of their Social Security benefits.
There are many techniques and planning strategies that can allow you to have far more income deposited to your checking account than provisional income. This can help mitigate not only taxes on your Social Security but reduce your overall taxes throughout your retirement.
It is crucial that you discuss your Social Security benefits and how those relate to your overall retirement and tax plan with a trusted financial advisor. At Barber Financial Group we don’t just look at one segment of your financial plan, we look at the entire picture to make sure you’re getting the most out of what you worked hard for your entire life.
Interested in more information? Make sure to check out our Education Center for videos, audiobooks, and white-papers on Social Security, or if you’d like to schedule an appointment with one of our advisors, fill out the form below.
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Investment advisory services offered through Barber Financial Group, Inc., an SEC Registered Investment Adviser.
The views expressed represent the opinion of Barber Financial Group an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Barber Financial Group does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.