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 consumers.
Title XVI and Title II Benefits are Treated Differently
All Title XVI (Supplemental Security Insurance or SSI) payments are not subject to tax.
All Title II (Social Security Disability Insurance or SSDI) benefits may be subject to federal tax, including:
- Social Security Disability Insurance (SSDI)
- Survivor (Widow(er) and Child)
- Auxiliary benefits
Federal Taxation of Title II Benefits
SSDI As Only Income
SSDI benefits are federally taxable depending on a beneficiary’s total income and marital status. If these benefits are a person’s only income, the benefits are normally not taxed and a federal income tax return need not be filed.
SSDI Plus Other Income
Beneficiaries who receive SSDI 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. SSI benefits are never taxed. The general guidelines are:
If a beneficiary files taxes as an individual
When the combination of gross earned income and Title II benefits is between $25,000 and $34,000, the beneficiary may need to pay federal income tax on up to 50% of benefits received. If this combined income is more than $34,000, the beneficiary may need to pay federal income tax on up to 85% of benefits received.
If a beneficiary files a joint return with his/her spouse
When the combination of the couple’s gross earned income and Title II benefits is between $32,000 and $44,000, they may need to pay federal income tax on up to 50% of benefits. If this combined income is more than $44,000, they may need to pay federal income tax on up to 85% of benefits received.
If a married couple files their federal returns separately
Taxes will probably be owed on any Title II benefits received.
Benefits Paid in Previous Year
By January 31 of every year Social Security sends each beneficiary Form SSA-1099 (Social Security Benefit Statement). This form 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.
For more information, read POMS GN 05001.005 Taxation of Benefits.
Paying Taxes on Title II Benefits
Title II beneficiaries can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from their benefits.
Federal Resources for Title II Beneficiaries
- Social Security Benefits Planner
- Social Security and Equivalent Railroad Retirement Benefits – IRS Publication 915
- IRS Free File: Do Your Federal Taxes for Free
- IRS Website
Earned Income Tax Credit
Benefits counselors should be aware of the federal Earned Income Tax Credit for people who work and have low to moderate adjusted gross yearly income. It reduces the amount of taxes people pay on their work earnings and so serves as a type of work incentive.
To be eligible for Earned Income Tax Credit 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 Earned Income Tax Credit the tax form used (it is not automatic)
- Not owe any back taxes when filing the return
Qualifying Income Limit and Amount of Credit
The qualifying income limit depends on a person’s marital status and number of dependent children: for 2018 the range is from $15,270 for an unmarried person with no children to $54,884 for a married couple filing jointly and having three (3) or more dependent children.
The amount of credit ranges from $519 to $6,431 for 2017. A qualifying individual receives a refund after a return is filed.
To learn more, visit IRS Earned Income Tax Credit.
Title II benefits are not subject to Wisconsin income tax.
Homestead Tax Credit for Low-Income Homeowners and Renters
The Homestead Tax Credit through Wisconsin’s 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 is to help people meet the costs of their property tax bills and rental payments.
To be eligible to receive the Homestead Tax Credit, a person must:
- Have been an adult resident of Wisconsin the entire year
- Own or rent the property that he/she lives on
- Have total household annual income of less than $24,680
- Meet at least one of the following criteria (new for 2018):
- Have earned income in 2018
- Have a disability
- Be at least 62 years old
Qualifying Income, Taxes, and Rent
Household income includes all taxable and some nontaxable income. Social Security benefits like SSDI, Retirement, and SSI are included. If the household income is under $24,680, there is a $500 deduction for each qualifying dependent.
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.
Amount of Credit
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 2018 is $1,168.
A person must complete a Wisconsin Homestead Credit Claim (Schedule H or H-EZ) to receive the credit.
Homestead Tax Credit Resources
- To learn more about the Homestead Tax Credit, read the Wisconsin Department of Revenue’s Homestead Credit Fact Sheet 1116.
- For help in preparing a homestead credit claim, contact any Department of Revenue office.
Wisconsin Tax Resources
Visit Wisconsin’s Department of Revenue for information on:
- Free Tax Preparation
- Answers to Common Questions
- Links to Common Forms