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Does the government come for some of your Social Security checks?

Does the government come for some of your Social Security checks?

Social Security will be one of the main sources of income that you rely on in your later years. You don’t have to worry about these benefits running out and you can count on them to go up as inflation raises prices, thanks to the way the retirement program is designed.

But you may be surprised to learn that you can’t always keep all of your benefits. Depending on your income and where you live, both the federal government and your state government may want to keep a portion of your payments.

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Should You Give the Federal Government a Cut on Your Benefits?

The first possible way to share some of your Social Security Benefits is if the federal government takes some of them in taxes. About 50% of retirees end up paying some of their hard-earned benefits to the IRS.

You could be one of them if your provisional income exceeds $25,000 as a single tax return or $32,000 as a married joint filer. Once your income reaches this threshold, you will be taxed on up to 50% of your benefits.

If your income is slightly higher – $34,000 for single filers or $44,000 for married joint filers, you could lose even more of your benefits. Currently, up to 85% of the distributions are taxed.

The good news is that not all of your income counts when calculating the “provisional income” on which this threshold is based. Provisional income is half of Social Security benefits plus all taxable income and a portion of non-taxable income.

Still, these thresholds are not subject to increases due to inflation, so a growing number of retirees will have provisional incomes above these thresholds and will eventually have to give up some of their retirement income to cover federal taxes.

What about your state government?

You could also eventually you have to relinquish some of your benefits to your state government.

You don’t have to worry about this if you are in one of the 37 states who do not tax the social security checks. But if you live in one of the other 13, you’ll need to learn what the rules are when your Social Security becomes taxable. Income restrictions may be different from IRS rules in some states, so you’ll need to check with your individual location’s tax authorities if you live in one of these 13 locations:

  • Colorado
  • Connecticut
  • Kansas
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Mexico
  • North Dakota
  • Rhode Island
  • Utah
  • Vermont
  • West Virginia

It is very likely that you are standing as well as federal taxes on benefits if you live in one of these places, so you could lose a significant portion of your total Social Security retirement income to various tax authorities.

It’s important to plan for taxes you may owe on benefits, either by taking steps to avoid them, such as: Choosing to Invest in a Roth IRA throughout your career or by factoring these taxes into your budget when you create retirement plans. So make sure you know your obligations to the government before you retire and claim your Social Security checks.