withholding

[Melas]

Hi, should I have federal and state taxes withheld on my state pension and social security?

[Cate9]

Hi! That is a great question!  Planning ahead for taxes is never something we WANT to do, but it can really help avoid sticker shock at tax time.  To address this question you really need to know how much income  you have, other than your social security.  Your social security is not taxed until you have income the exceeds a certain threshold.  And then the percentage that is taxed is based on that other income. Up to 85% of your social security can be taxed if your income is over the max threshold.

You will pay tax on only 85 percent of your Social Security benefits, based on Internal Revenue Service (IRS) rules. If you:

• file a federal tax return as an "individual" and your combined income* is
  • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
  • more than $34,000, up to 85 percent of your benefits may be taxable.
• file a joint return, and you and your spouse have a combined income* that is
  • between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
  • more than $44,000, up to 85 percent of your benefits may be taxable.
• are married and file a separate tax return, you probably will pay taxes on your benefits.

Your adjusted gross income
+ Nontaxable interest
+ ½ of your Social Security benefits
= Your "combined income"

Here is a link to the SSA information on taxability of your SS benefits. https://www.ssa.gov/benefits/retirement/planner/taxes.html#:~:text=between%20%2425%2C000%20and%20%24....

Then you have to consider how much your total income will be.  If you make over a certain amount you will need to apply the current tax rates so that you can estimate how much to withhold on your pension and your social security payments. 

The tax items for tax year 2023 of greatest interest to most taxpayers include the following dollar amounts:

• The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700 up $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022.
   
• Marginal Rates: For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).
  
  The other rates are:
   
  • 35% for incomes over $231,250 ($462,500 for married couples filing jointly);
  • 32% for incomes over $182,100 ($364,200 for married couples filing jointly);
  • 24% for incomes over $95,375 ($190,750 for married couples filing jointly);
  • 22% for incomes over $44,725 ($89,450 for married couples filing jointly);
  • 12% for incomes over $11,000 ($22,000 for married couples filing jointly).
     

  The lowest rate is 10% for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).

Here is a link to the IRS web site discussing 2023 tax rates. https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023