Dear Rusty: Is it possible for you to go over how the federal withholding tax is computed on Social Security benefits?

Curious Taxpayer

Dear Curious: I’m not sure if you’re asking about how FICA (or self-employment) tax on your earnings from work is determined, or if you’re asking about how much income tax to have withheld from your Social Security benefit, so I’ll address both:

The 7.65 percent FICA tax withheld from your earnings by your employer consists of two elements - 6.2 percent is for Social Security and 1.45 percent is for Medicare Part A.

Your employer pays an equivalent amount on your behalf. This is a standard amount all American workers pay, which, after enough credits are earned, enables you to collect Social Security benefits when you retire and permits you to enroll in Medicare Part A for free when you’re 65.

If you are self-employed, you pay a “self-employment tax” on your net earnings instead of a FICA tax, and you must pay both the employee and employer portion of the tax (15.3 percent).

The only exception to this is that certain U.S. states have opted out of participation in the Federal Social Security program, thus exempting some state employees from paying the Social Security portion of the FICA tax (they must still pay the Medicare Part A portion).

These percentages are set by Congressional legislation and will not change unless Congress enacts future legislation to do so.

Determining how much income tax to have withheld from your Social Security is something best discussed with a qualified tax adviser with access to all your income data.

Your recommended tax withholding rate for income tax purposes depends upon your overall taxable income level and the tax rate which results from that income (considering your dependents and your tax filing status (single or married). Having income tax withheld from your Social Security benefit is optional, but if you choose to do so you must submit IRS form W-4V to your local Social Security office. Form W-4V permits you to specify that either 7 percent, 10 percent, 12 percent or 22 percent of your Social Security benefit be withheld for income tax purposes.

Here’s a link to IRS form W4-V: irs.gov/pub/irs-pdf/fw4v.pdf.

The IRS may levy income tax on a portion of your Social Security benefits depending on your combined income from all sources. Your “combined income” consists of your Adjusted Gross Income on your tax return, plus 50 percent of your Social Security benefits received during the tax year, plus any other nontaxable income you may have had. Tax on your Social Security benefits is computed at your normal IRS tax rate and based on your tax filing status.

If you file your income tax as “single” and your combined income from all sources exceeds $25,000, then half (50 percent) of your Social Security benefits becomes part of your overall taxable income.

And if your combined income from all sources as a single filer exceeds $34,000 then up to 85 percent of your Social Security benefits become taxable income.

If your income tax filing status is “married-filing jointly” and your combined income is over $32,000 then 50 percent of your Social Security benefits received during the tax year becomes part of your taxable income. If, as a couple filing “married/jointly,” your combined income exceeds $44,000, then up to 85 percent of the Social Security benefits you received during the tax year becomes part of your overall taxable income.

***

Editor’s Note: After a long career in the data processing industry, Russell Gloor joined the Association of Mature American Citizens in 2013. Gloor received training from the National Social Security Association and was accredited by the NSSA® as a Social Security adviser in 2016. Currently part of the AMAC Foundation’s Social Security Advisory team, he annually counsels thousands of American seniors about their Social Security options. In addition to answering Social Security questions daily, he also authors the AMAC Foundation’s nationally syndicated weekly “Ask Rusty” advice column and has written three instructional books about Social Security.

This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association. NSSA® and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at ssadvisor@amacfoundation.org.