I’m trying to help my parents out with W-4 withholding. Both my parents are collecting Social Security benefits, but my father still works a part-time job because he gets bored at home.
Their only income comes from dad’s job and their Social Security pensions. Mom retired last year, and because of that, dad wants to change his withholding allowances and asked me to figure out how to get it as close to break-even as possible. So I went to the IRS website and found their withholding calculator and form W-4. The problem is, neither one seems to take into account Social Security income.
Is Social Security income treated as another job for the purpose of withholding? Is it not taxed at all? I don’t want to get him in any trouble with the IRS.:eek: How should I proceed here?
Estimating withholding accurately can be a bit tricky. For the W-4 you just declare how many dependents, plus extra withholding dollars if you want. I think the best you can do is to make a stab at it, and see how much is actually taken out. You can adjust it after a month or two if it seems like too little or too much. I would start out with 1 dependent and go from there. Note, I am far from a tax expert, this is just based on personal experience.
Remember that Social Security can (but doesn’t have to) have withholding taken out; this is usually when there is substantial other income, such as a pension or IRA withdrawals. So find out if they have any SS withholding too. At the end of the year, SS income is counted as just income, along with any other income.
The worst trouble they could get into with the IRS is if they had no withholding at all and had to pay a large tax bill at the end of the year. In those cases, the IRS expects them to make quarterly estimated payments, and if they didn’t they could get a fine. But if SS and that part-tine job are their only income, they won’t come anywhere near that level. So I don’t think you need to worry about that.
Depending on overall income, some portion (up to 85%) of SS befits may be taxable. The calculation is pretty complicated, but some information can be found here.
You’re going to want to put a monthly deduction in that “extra deductions” box on the W4 that equals [amount owed in 2018]/12. Fussing with the dependents thing is too complicated.
I owed an extra $700 this year because I had a W2 for around $8000 with no federal tax taken out. That money came monthly, and I read somewhere that there’s a lower threshold under which no federal tax is taken out (maybe $13k/year?) If I just made that $8k, I wouldn’t owe. But since I made $8k plus my regular full-time paycheck, added together I owed whatever I paid for my regular job + $700.
Anyhow, my first instinct was to mess with the dependents too. But further research led me down the path of adding that extra deduction to my W4 for the $8000/year job, to cover the eventual taxes.
Although, if your dad’s income is just this job and SS, I am wondering if his scenario is the same as mine. Does he actually have two low-paying jobs with W4s and W2s? Neither of which is taking out Federal Income Tax? Is he paying tax on investment income?
Are you/he aware that if you’re below your minimum retirement age, after you earn a certain amount, SS will be reduced by $1 for every $2 earned over the limit? In 2019, the amount is $17,640. After MRA, there’s no earning limit.
If you’re aware, don’t pay attention to this post.
Yes. How old is your dad? If he took early SS retirement there are limits to how much additional money he can make each year. If he waited until full retirement for his age then there are usually no limits. Also, if you are married they look at the total combined income to determine the limits. Because my wife is much younger and still making bank, my benefits will be taxed based on total family income. So I am planning on 85% of my SS being taxable.
The age of full SS benefits is different for everyone, it is based on your age. I was born in 1956, my full SS retirement age is 66 years and 4 months. This is not the full SS retirement age for everyone.
Like Marvin the Martian says, it is complicated. If there is a SS office near you perhaps they can help.
Here is a calculator that will let you determine how much of your SS will be taxed.
I believe that the rule is that for filing jointly, half of your SS + other income must be under $32,000. If you exceed that, up to 85% of your SS can be taxed.
