Identification

• The Internal Revenue Service taxes Social Security retirement benefits if your income, in addition to Social Security, raises your combined income figure to above $25,000 in a year. For the combined income calculation, use the gross income from your IRS Form 1040 tax return and add nontaxable interest and 50 percent of your Social Security benefits. If this figure is over $25,000 and you are single, your Social Security benefits are taxable as income. If you are married filing jointly, taxation starts at $32,000.
  
  

Effects

• If your combined income figure is over $25,000 but less than $34,000 when filing individually, or $32,000 but less than $44,000 when filing jointly, only 50 percent of your Social Security benefits are taxed. If the figure is over $34,000 for individuals or $44,000 for joint filers, 85 percent of your Social Security benefits are taxable. If you receive $10,000 a year in Social Security benefits, up to 85 percent of your benefits would be taxed, or $8,500. Taxation at 10 percent would translate to $850 in taxes due at filing time. Make your own rough calculations based on your figures.
  
  

Considerations

• If you believe your income taxes will be significant based on your calculations, you may choose to have taxes withheld from your Social Security payment each month. Use the W-4V form for voluntary tax withholding and drop it off at your local Social Security office. You can select the percentage you want taken from your check each month from the choices of 7 percent, 10 percent, 15 percent or 25 percent.
  
  

Potential

• You can use the voluntary withholding to develop a tax cushion for next year so you are not surprised at tax time, and so that you may receive a refund. This becomes an effective savings plan for those who live close to the edge, although it does not pay interest.
  
  

Warning

• The IRS has payment plans and regulations in place for payment of income taxes. Do not fail to file your income tax return timely because you owe money. File your tax return and pay as much as you can. Your first option should be to get a loan or pay with a credit card. Study the IRS online payment agreement if you need to make payments. The IRS may charge penalties and interest until the total tax is paid.