Senior Managing Advisor

James R. Holloway, Sr. is the owner and Senior Managing Advisor at Texas Financial & Retirement, serving East Texans with financial planning and retirement assistance.

irs 1040 form and social security card

Social Security card and IRS 1040 income tax form

It may seem counter-intuitive, but you may have to pay income taxes to the Federal government on a portion of your Social Security benefits that you receive FROM the federal government. 

Who has to pay?

Not everyone has to pay. So, your friend or relative who tells you they don’t have to pay any income tax on their Social Security may be correct - for themselves. But that may not be true for you.

The Internal Revenue Service determines who is required to pay income tax on Social Security benefit payments using a number they call “Combined Income.” Your combined income is a unique number used solely to determine whether or not a portion of your Social Security benefits are taxable. This is not the same as an IRS number with which you may be more familiar - Adjusted Gross Income.

You calculate your Combined Income like this:

               Adjusted Gross Income

               +     Nontaxable interest

               +     HALF of your Social Security benefits

               _____________________________________

               Combined Income

Then there are several situations where you may end up owing income taxes on some part of your Social Security:

You file taxes as an “Individual”...

  • and your Combined Income is anywhere from $25,000 up to $34,000 - you may owe taxes on up to fifty percent of your Social Security benefits
  • and your Combined Income is over $34,000 - you may owe taxes on up to eighty-five percent of your Social Security benefits

You file taxes as a “married, joint” tax return with your spouse…

  • and the Combined Income for you and your spouse is anywhere from $32,000 up to $44,000 - you may owe taxes on up to fifty percent of your Social Security benefits
  • and the Combined Income for you and your spouse is over $44,000 - you may owe taxes on up to eighty-five percent of your Social Security benefits

You file taxes using a “married, separate” tax return...

Quarterly Payments or Automated Deductions?

If you look at your expected income and your Social Security disbursements and it appears you’ll owe some income taxes on part of your Social Security income, there are a couple of ways you can make those payments.

Maybe you are comfortable and accustomed to budgeting for quarterly Estimated Tax payments[3] from your pre-retirement career - or from the work you’re still doing even though you’ve already begun receiving Social Security. If so, you may opt to save the tax you expect to owe on your Social Security and send it to the Internal Revenue Service each quarter of the year. 

For many retired people, however, that may not be convenient. If this is true for you, you can choose to have Social Security withhold a portion of the amount they would have been paying to you to help with your taxes. This method works in a way familiar to most employees. When you received your paycheck while working, it probably had a portion withheld to cover income taxes, Medicare taxes, etc. You can arrange something similar for your Social Security payments using the IRS Form W4-V.

That form gives you the option of several different levels of withholding:

                 7 %

               10 %

               12 %

               22 %

Note that you return that form to Social Security (the payer), not the IRS.

Making Your Plan

Accounting for any income taxes which may be due on your Social Security is just one of the many topics which should be considered when creating your own retirement plan. A financial planner, like James Holloway Sr. and the rest of the team at Texas Financial and Retirement, could help you consider all the expected expenses and income sources which may affect your retirement income. That just helps you make a better plan and know what to potentially expect. Some topics, like this one, may also benefit from a visit with a tax professional.

Contact our team at 903-534-5477 or bestclients@texasfinancialandretirement.com to ask about one of our free initial visits. If we seem like a good fit for each other, we’ll arrange to review your current financial position and discuss your goals for your retirement. Then we can work together to create a customized plan for your retirement which helps you to maximize your total income while minimizing any tax burden on your heirs.


Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Texas Financial and Retirement, Inc. are not affiliated companies. Investing involves risk, including the potential loss of principal. Neither the firm nor its agents or representatives may give tax or legal advice.  Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 692721

Retire Ready

James R. Holloway, Sr. is the owner and Senior Managing Advisor at Texas Financial & Retirement, serving East Texans with financial planning and retirement assistance.

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