Taxes are a certainty in life. We live in a society where we all must contribute to keep it running. Taxes are something we all have to deal with, so why are they so confusing? Say what you will about how taxes work, it could definitely be made simpler. Especially when dealing with Social Security, where many are surprised to find that benefits are taxable. With all the confusion and misinformation, it can be hard to move forward. So, let’s clear some things up; here are three Social Security tax myths debunked.
Tax Myth #1: If you work and collect benefits, your taxes will go up
The quick answer is no. Earning an income and collecting benefits at the same time can be a delicate balance. People are often surprised that you can do both simultaneously. Your income might affect your overall benefit amount, but it won’t affect your taxes in any surprising ways. If you are earning an income, you will still have to pay payroll taxes like you would normally.
Tax Myth #2: Self-Employed People Pay less into Social Security
The honest answer is no they don’t. In fact, self-employed people pay double the amount of payroll taxes. Non-self-employed people pay up to 6.2 percent in payroll tax, while self-employed pay closer to 12.4 percent in payroll tax. This is important to know, as many seniors enter a “half-retirement,” and either return to the work force or start up their own venture to earn more for their full retirement.
Tax Myth #3: Spouses don’t have to pay taxes on spousal benefits
The true answer is that it depends on your total household income. Filing separately would most likely mean you’d pay taxes on your benefits. Filing a joint return would mean that the SSA would look at your combined income as a household and determine if you fall into a taxable bracket. If you meet that threshold then yes, you and your spouse will have to pay taxes up to a certain percentage of your benefits.
Social Security is a wonderful asset for our retirement, but we must understand how it actually works. The Council for Retirement Security is working to protect Social Security, and to help people understand Social Security on a deeper level. Understanding the truth behind these tax myths will help us plan, budget, and thrive in retirement.