Income Taxes

• If you work and collect Social Security, you may owe federal or state income taxes on your Social Security benefits. The IRS calculates combined income specifically for Social Security taxation. You must have a combined income in excess of $25,000 as a single taxpayer or $32,000 if you file a joint tax return for federal taxation to apply to Social Security benefits. Combined income is the total of half of your annual Social Security income, your nontaxable interest income and your adjusted gross income. If you do not have income in addition to Social Security, you owe no federal or state income taxes on Social Security.
  
  

Voluntary Federal Withholding

• The IRS provides Form W-4V for individuals who want to have federal income taxes voluntarily withheld from Social Security checks. You choose the percentage you want withheld from 7 percent, 10 percent, 15 percent or 25 percent and send your W-4V to your local Social Security office. You should see a difference in your Social Security check within two months and this withholding may decrease your federal tax liability, freeing funds for your state income taxes.
  
  

State Withholding

• Social Security has no authority to withhold state taxes from a federal Social Security payment. You can choose a higher percentage on your voluntary federal withholding to cover your state income tax amount or establish a bank account to accumulate the estimated state tax payment. As you must have other income or you owe no income taxes on Social Security, you may choose to withhold an increased amount with your employer or your other sources of income.
  
  

Taxes

• The IRS bases Social Security taxation on the combined income figure. If you file federal income taxes as a single taxpayer and your combined income is between $25,000 and $32,000, the IRS taxes 50 percent of your Social Security benefit. That 50 percent tier is between $34,000 and $44,000 for persons married filing jointly. The IRS taxes 85 percent of your Social Security benefits if your combined income figure is above $32,000 as a single filer or $44,000 as a married taxpayer filing jointly. Because some states use the federal income tax figures for state income taxes, you are not likely to pay state income taxes on all of your Social Security benefits for the year. Calculate 50 or 85 percent of your Social Security annual benefit, whichever applies, and estimate your state tax liability based on that amount. Kiplinger reports that 35 states do not tax Social Security benefits in 2010, so maybe your state is not one that imposes income taxes on Social Security benefits. Even in the states that tax Social Security benefits, most have an exemption for part of retirement income.