Benefits Specialists normally do not assist clients with their taxes unless they are qualified tax preparers. However, they should have a general knowledge of how Social Security benefits may affect a person’s taxes and what credits may be available to their clients. All Title II benefits may be subject to federal tax; this includes:
- Social Security Disability Insurance (SSDI)
- Survivor (Widow(er) and Child)
- Auxiliary benefits
Title XVI (Supplemental Security Income or SSI) payments are not subject to tax.
Social Security benefits are federally taxable depending on a beneficiary’s total income and marital status. If Social Security benefits are a person’s only income, the benefits are normally not taxed and a federal income tax return need not be filed. Beneficiaries who receive Social Security benefits plus other income, need to complete the worksheet in the Form 1040 or 1040A instruction book to see if they must pay federal taxes on their benefits. The general guidelines are:
- When a beneficiary files taxes as an individual and has combined countable income of between $25,000 and $34,000, federal income tax may need to be paid on up to 50 percent of SSA benefits. If the combined income of an individual is more than $34,000, up to 85 percent of the benefits may be taxed.
- When a beneficiary files a joint return with his/her spouse and their combined countable income is between $32,000 and $44,000, federal income tax may have be paid on up to 50 percent of the SSA benefits. If the combined couple income is more than $44,000, up to 85 percent of the benefits may be taxable.
- When each member of a married couple files a federal return separately, taxes will probably be owed on any Social Security benefits received.
By January 31 of every year the Social Security Administration (SSA) sends each beneficiary Form SSA-1099 (Social Security Benefit Statement) which shows the total amount of the benefits paid in the previous year. The figures listed on this form should be used to determine taxable benefits.
(POMS GN 05001.005)
If you do have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from your benefits.
Earned Income Tax Credit (EITC)
Benefits counselors should be aware of the federal EITC which is for people who work and have low to moderate adjusted gross yearly income. The EITC is a tax credit that reduces the amount of taxes people pay on their work earnings and so serves as a type of work incentive.
The qualifying income limit depends on a person’s marital status and number of dependent children: for 2017 the range is from $15,010 for an unmarried person with no children to $53,950 for a married couple filing jointly and having three (3) or more dependent children. The amount of credit ranges from $510 to $6,318 for 2017.
To be eligible for the EITC a person must first meet a few general conditions: have earnings from work (benefits from Social Security do not count), file a federal income tax return (even if one’s income level is low enough to make filing optional), claim the EITC on the tax form (it is not automatic), and not owe any back taxes when filing the return. A qualifying individual receives a refund after a return is filed.
Social Security benefits are not subject to Wisconsin income tax.
However, the Homestead Tax Credit (HTC) through state Department of Revenue can help low income homeowners and renters in Wisconsin by providing an income tax credit or an annual cash benefit. The purpose of HTC is to help people meet the costs of their property tax bills and rental payments.
To be eligible to receive HTC, a person must have been an adult resident of Wisconsin the entire year, own or rent the property that he/she lives on, and have total household annual income of less than $24,680. Claiming Homestead Credit
Household income includes all taxable and certain nontaxable income (including both Title II benefits and Title XVI or SSI payments), less a deduction of $500 for each qualifying dependent. If household income is $24,680 or more, no credit is available. Property taxes are those levied in the previous year regardless of when they are paid. Rent includes only those amounts actually paid in the previous year.
The amount of credit depends on the amount of household income and the amount of allowable property taxes and/or rent. Persons sharing living expenses for a rented homestead are each entitled to claim a portion of the rent paid for occupancy of the homestead. The maximum credit for 2017 is $1,168.
A person must complete a Wisconsin Homestead Credit Claim (Schedule H or H-EZ) to receive the credit. For help in preparing a homestead credit claim, contact any Department of Revenue office.