IRS Notice 703: Are Your Social Security Benefits Taxable?

IRS Notice 703: Are Your Social Security Benefits Taxable?

What Is IRS Notice 703?

IRS Notice 703 helps individuals who receive Social Security benefits determine whether they need to pay income tax. A 703 is not a balance due notice like many other IRS letters. It is simply a worksheet to calculate how much tax you may have to pay on Social Security. The IRS can tax up to 85% of Social Security income.

Who Receives Notice 703 from the IRS?

Anyone who receives an SSA-1099 and Form 1099-R will also be sent IRS Notice 703. If you have income from Social Security plus a pension or other retirement plan(s), you will receive all the above forms and notices from the IRS each tax year.

When are Social Security Benefits Taxable?

Thankfully, not all Social Security benefits are taxable. As mentioned above, the maximum Social Security tax rate is 85%. If an individual’s combined income is between $25,000 – $34,000, 50% of Social Security benefits are taxable.

When income exceeds $34,000, 85% of SS is taxable. Also, your benefits can be taxed when you file a joint return. If joint income is between $32,000 – $44,000, 50% of Social Security benefits are taxable. When joint income exceeds $44,000, 85% of SS is taxable.

How Can I Determine if My Social Security Benefits are Taxable?

The easiest way to calculate if your Social Security benefits are taxable is to complete the 703 Notice worksheet. After you plug in your numbers, you will know what amount of your Social Security is taxable.

Information needed to complete the 703 worksheet includes lump-sum benefit payments, wages, pensions, interest, dividends, and other capital gains. You will also factor in any tax-exempt interest earned.

How Do I Report Social Security Benefits on My Tax Return?

You should report the amount from your IRS Notice 703 worksheet on your 1040. Enter your taxable Social Security benefits on 1040 line 6b. Note that if you do not include your Social Security amount and you owe tax, the IRS will assess a late payment penalty.

If you do not know whether your Social Security benefits are taxable and cannot complete the 703 Notice worksheet yourself, you can always contact a licensed tax professional for help.

What Are My Options If I Have to Pay Taxes on Social Security Benefits?

If you owe Social Security taxes, there are two payment options. The first is to make quarterly payments based on an estimate of combined income you expect to earn (including your Social Security benefits).

The second is to have your federal taxes withheld automatically from your Social Security payments. Keep in mind that if you do not pay the tax you owe for Social Security, you are at risk of an IRS levy.

The IRS will take up to 15% of your Social Security benefits and up to 25% of pension/retirement income to settle back taxes.

Will the IRS Take My Social Security Benefits If I Have Unpaid Taxes?

Yes, the IRS will levy your Social Security benefits when you have unpaid taxes. As mentioned, they can take up to 15% of your benefit payments. The Federal Payment Levy Program helps the IRS collect unpaid taxes from people with Social Security income.

This levy offsets your tax debt. Keep in mind that your tax debt will grow until it is paid in full, as interest charges will be added for as long as you owe.

Can Social Security Benefits Be Taxed Regardless of How Old You Are?

The tax rules regarding Social Security benefits remain the same regardless of a taxpayer’s age. Social Security taxes are solely based on income and not age or other factors.

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