Here is the info on our income:
Together we get $42,600 (after Medicare deductions) from Social Security annually.
We took an IRA $20,000 withdrawal with a 10 percent tax withholding. And plan to do so annually.
First, what tax rate should we expect to pay next year?
Second, I am aware the $20k IRA withdrawal is taxable. But is it income which could lessen what we receive from Social Security?
Thank You
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My suggestion is to focus on your tax bracket in determining the impact of taxes on your income. If you can fill up the bracket without going to a higher bracket. I do not know your tax bracket but here is an example:
Tax Brackets and Rates, 2021 |
||
22% |
$40,526 to $86,375 |
$81,051 to $172,750 |
24% |
$86,376 to $164,925 |
$172,751 to $329,850 |
32% |
$164,926 to $209,425 |
$329,851 to $418,850 |
35% |
$209,426 to $523,600 |
$418,851 to $628,300 |
Using the above bracket amounts of $40,526 to $86,375. If your adjusted gross income is $50,000, you will not enter a higher tax bracket until you make $36,375 more to fill up the bracket. Do not forget to withdraw your standard deduction amount from your gross income to arrive at your adjusted gross income.
Only earned income, your wages, or net income from self-employment is covered by Social Security. If money was withheld from your wages for “Social Security” or “FICA,” your wages are covered by Social Security. This means you are paying into the Social Security system that protects you for retirement, disability, survivors, and Medicare benefits.
Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes. You may need to pay income tax, but you do not pay Social Security taxes.
When SSA figures out how much to deduct from your benefits, they count only the wages you make from your job or your net profit if you're self-employed. They include bonuses, commissions, and vacation pay. They don't count pensions, annuities, investment income, interest, veterans, or other government or military retirement benefits.
The Social Security Medicare Deduction doesn't count or affect anything. The full gross Social Security is what matters.
Up to 85% of Social Security becomes taxable when all your other income plus 1/2 your social security, reaches:
Married Filing Jointly: $32,000
Single or head of household: $25,000
Married Filing Separately: 0
For the Social Security reduction.......how old are You? Are you still working? If you are over full retirement age your actual ss checks won't be reduced. Otherwise they will actually reduce your payments if you make too much other income in the prior year. See SS FAQ for working after retirement
https://www.ssa.gov/planners/retire/whileworking.html
Also if you have a high income they will increase your Medicare Premium deduction the next year. So you could get less net deposit.
The IRA withdrawal will not affect the amount you are currently receiving from social security, nor will it change it in the future, but it could affect the amount of taxes you pay on your total combined income. However, based on just the numbers you provided and assuming you qualify for the $27,400 standard deduction for seniors (not sure how old you are), it is unlikely you will have to pay any taxes this year because the total amount ($20,000 IRA + ~$4,650 taxable portion of SS) will be less than the standard deduction. So, you should expect to receive that 10% withholding back.
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