A common inquiry revolves around the taxation of social security benefits, particularly within the state of California. The answer to this question varies based on several factors. In California, social security benefits are not subject to state taxation. Essentially, the portion of social security benefits included in adjusted gross income on one’s federal return remains untaxed by California. However, it’s crucial to note that social security benefits may still be taxable at the federal level.
The collection of social security tax occurs through either the Federal Insurance Contributions Act (FICA) for employees or the Self-Employed Contributions Act (SECA) for self-employed individuals. Every employed or self-employed person contributes to social security through regular tax payments, which in turn fund the social security benefits they receive later in life.
Upon reaching the eligibility age, typically around 62, some individuals may find that they owe federal income taxes on their social security benefits. This usually happens if the taxpayer has significant additional income beyond social security benefits. This additional income could stem from self-employment, interest, dividends from retirement accounts, or other taxable sources.
The Internal Revenue Service (IRS) mandates taxation on a portion of social security benefits depending on the taxpayer’s income and filing status. For single filers with a combined income falling between $25,000 and $34,000, up to 50 percent of social security benefits may be subject to income tax. If the combined income exceeds $34,000, the taxable portion could rise to 85 percent.
For joint filers, if the combined income with their spouse ranges from $32,000 to $44,000, up to 50 percent of social security benefits may be taxable. Again, if the combined income surpasses $44,000, the taxable portion could escalate to 85 percent.
Taxpayers can utilize their annual Social Security Benefit Statement (Form SSA-1099), which is issued by the Social Security Administration each January, to gauge the potential income tax liability associated with their social security benefits.
For assistance in understanding potential federal tax obligations related to social security benefits, consulting with a knowledgeable tax professional is advisable. It’s important to reiterate that California does not impose taxes on social security benefits. If individuals receive any conflicting information or requests regarding the taxation of social security benefits in California, seeking guidance from a tax attorney is recommended.
Learn more: Robert Hall & Associates | Los Angeles Tax Preparation & Consulting