The government takes money from you for Social Security throughout your working life, and that doesn't always end when you receive your first benefit check. You'll keep most of it, but if any of the scenarios below apply, you'll have to give a share back to Uncle Sam.
1. Federal taxes on Social Security benefits
The federal government taxes any Social Security recipient if their provisional income exceeds $25,000 for a single adult or $32,000 for a married couple. Your provisional income is your adjusted gross income (AGI) plus any nontaxable interest you have and half your annual Social Security benefits.
How much tax you'll owe depends on what your provisional income is. Single adults with a provisional income between $25,000 and $34,000 pay taxes on up to 50% of their Social Security benefits, as do married couples with provisional incomes between $32,000 and $44,000. Single adults and married couples with provisional incomes exceeding $34,000 and $44,000, respectively, owe taxes on up to 85% of their benefits.
It's sometimes possible to avoid these taxes with careful planning. For example, if you're approaching the income thresholds listed above, you may be able to reduce your spending for the rest of the year to stay under it. Or you can rely more upon your Roth retirement savings. Withdrawals from these accounts don't affect your provisional income.
2. State taxes on Social Security benefits
There are currently only 12 states that tax Social Security benefits. They are:
- New Mexico
- Rhode Island
- West Virginia
If you live elsewhere, you won't have to worry about owing state taxes on your benefits. And if you live in one of these states, you still might not owe anything. Each has its own rules for determining which Social Security recipients owe benefits. It's usually related to your income or the size of your annual Social Security benefit.
Check with your state's department of taxation to learn how it handles Social Security benefit taxes. Depending on how it's structured, you may be able to avoid these taxes using the same methods described above.
3. Medicare Part B premiums withheld
Social Security recipients who are also on Medicare will automatically have their Part B premiums withheld from their benefit checks. This is $170.10 for most people in 2022, though some high earners may have to pay as much as $578.30.
However, you could almost see this as a bonus. If the government didn't take this money out of your Social Security check, you'd get a bill for it each month instead. This is the case for those who are claiming Medicare but not Social Security. So with the automatic deduction, that gives you one less bill you have to pay manually.
At the same time, it means you need to adjust your expectations accordingly. When calculating your retirement budget, remember that your monthly Social Security checks will be reduced by the year's Medicare Part B premium cost unless you're not signed up for Medicare yet.
4. Garnishment for unpaid debts
The federal government is one of the worst creditors to have because it can take things most other creditors can't touch, including your Social Security benefit. If you owe back taxes, child support, or alimony, the government can take that money from your benefit checks if you're not keeping up with your payments.
But it may not take your entire check. If you owe back taxes, for example, the government will take up to 15% of each check until your debt is paid off.
It's not possible to appeal this decision with the Social Security Administration, so it's best to keep up with your debt obligations if you're able. Talk to the IRS about setting up a repayment plan if you're not able to pay all your taxes at once. It can work with you to find a solution that enables you to pay your debt over time without any Social Security garnishment.
As for garnishment due to unpaid child support or alimony, you'll have to talk to a lawyer to discuss your options if you don't agree with the decision.
You can't always avoid giving some of your Social Security checks back to the government. But you'll have a better chance at doing so if you're aware of what it can take from you and why. Keep the above tips in mind and, whenever possible, take steps to reduce your risk of forking over your benefits.