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Liz Weston

Q&A: Figuring taxes on Social Security

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Dear Liz: How will our Social Security payments be affected by any passive income such as from rental properties? We have two properties, which add $3,000 monthly to our current income. I plan on retiring at 72, which is six years away. My husband may retire earlier due to health problems. We will have savings as well as my 401(k) when I retire. Although my retirement income “pencils out,” I don’t know exactly what to expect from Social Security. How should I calculate my net income in retirement?

Answer: You could pay income taxes on up to 85% of your Social Security benefits if you have other taxable income. Examples of taxable income include wages, interest, dividends, capital gains, rent, royalties, annuities, pension payments and distributions from retirement accounts other than Roths.

To determine how much of your benefit is taxable, you would first calculate your “combined income,” which consists of your adjusted gross income plus any nontaxable interest you receive plus half of your Social Security benefits. If you file a joint return, you typically would have to pay income tax on up to half of your benefits if your combined income fell between $32,000 and $44,000. If your combined income was more than $44,000, up to 85% of your benefits would be taxable.

Thursday’s need-to-know money news

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Today’s top story: Spring clean your finances with some automation. Also in the news: Negotiating your COVID-19 hospital bills, what a tax holiday at the gas pump means for you, and how to prep for the financial hit of long COVID.

Spring-Clean Your Finances With Some Automation
Automating paying bills and saving money can save time, but be strategic with your approach and check in regularly.

Can You Negotiate Your COVID-19 Hospital Bills?
Insurance companies have stopped waiving COVID-19 treatment costs, but there are ways to appeal a huge medical bill.

What a Tax Holiday at the Gas Pump Means for You
Several states are suspending gas taxes, but not everyone agrees it’s the right move.

How to prepare for the financial hit of long COVID
As much as the virus attacks the body – it can also attack your financial life.

Wednesday’s need-to-know money news

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Today’s top story: Student loan pause extended again. Also in the news: Booking rental cars in advance vs last minute, how to account for inflation in your 2022 travel budget, and how to split rent when some rooms are better than others.

Student Loan Pause Extended Again — Is There an End Game?
Federal student loan borrowers just got an extra four months before their payments resume.

Which Is Cheaper: Booking Rental Cars in Advance or Last Minute?
Our analysis shows that you could save around 15% by booking last minute.

How to Account for Inflation in Your 2022 Travel Budget
Look at past trips and line your travel spending habits up against current rates to budget for this year.

How to Split Rent When Some Rooms Are Better Than Others
Are you ready to outbid your roommates to secure the best room in the house?

Tuesday’s need-to-know money news

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Today’s top story: Spring-clean your finances with some automation. Also in the news: How millennials can take their money to the next level, the latest scams targeting taxpayers, and which airline has the best rewards.

Spring-clean finances with some automation
Consider these strategies from financial experts.

Millennial Money: Take your money to the next level
It’s time for your money management to grow up a bit.

Tax Season Is Here Again, and So Are the Scams Targeting Taxpayers
The latest scams, and how to protect yourself.

Who has the best airline rewards?
Deciphering what your miles are worth.

Monday’s need-to-know money news

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Today’s top story: Tips for appealing s denied health insurance claim. Also in the news: A new episode of the Smart Money podcast on pet insurance and tax refunds, learning about your money in small steps, and big expenses you could face in retirement.

Tips for Appealing a Denied Health Insurance Claim
You have some recourse to get the insurance company to reverse its decision.

Smart Money Podcast: Using Your Tax Refund, and Is Pet Insurance Worth the Cost?
If you’re expecting a tax refund, it might be late. Plus, thinking through health care costs for a beloved pet.

Learn About Your Money in Small, Manageable Steps
April is Financial Literacy Month.

4 Big Expenses You Could Face in Retirement
Retirement planning is part savings, part guessing game.

Q&A: How to figure your capital gains tax bite so the IRS doesn’t zap you

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Dear Liz: We had big capital gains this year, and we owe taxes plus a penalty for not paying estimated taxes. Is there a way to plan ahead for taxes since every year is different regarding gains or losses? I know one option is to just pay estimated taxes quarterly based on the previous year’s gains. Apparently the mutual fund companies don’t automatically withhold the taxes.

Answer: Our tax system is “pay as you go,” which means the IRS expects you to pay taxes as you earn or receive income. If you fail to do so and your tax bill is more than $1,000, you may face penalties.

As you rightly note, though, you won’t know what your total capital gains or losses will be until year’s end. You wouldn’t want to pay taxes on a big gain one quarter only to have a big loss the following quarter. You can avoid the penalties by making sure your withholding and estimated tax payments equal at least 100% of the total tax you paid in the previous tax year if your income is $150,000 or less. If your income is over $150,000, your payments and withholding should equal at least 110% of last year’s taxes.

The alternative is to pay at least 90% of the tax you’ll owe on your estimated income for the current year. A tax pro can help you figure out how much you need to pay as well as offer tips for reducing your tax bill.