The Social Security Administration (SSA) allows citizens to collect Social Security benefits for various reasons. Whether you are receiving SSDI benefits or Social Security retirement benefits, your income may be subject to taxation. Review your benefits with a lawyer to protect your income and understand your tax obligations.
Arkansas does not tax Social Security benefits, and your Social Security income should be completely exempt from state taxes. However, you also have federal tax obligations, and the federal government may tax some Social Security benefits but not others. Whether your benefits are subject to federal taxation and how much they are taxed may depend on your combined income and financial situation.
Review your Social Security income in a free legal evaluation with our Arkansas disability benefits lawyers by calling our team at (479) 316-0438.
Does the State of Arkansas Tax Social Security Income?
Taxes are infamously confusing, and it can be all too easy to make a mistake when filing your taxes. If you receive any income from Social Security, your taxes may be even more complex, and you should speak to an attorney about how to claim your Social Security income on your taxes.
Social Security Retirement Benefits
Arkansas does not tax any form of Social Security income, including Social Security retirement benefits. If you are retired and receive an income from Social Security, Arkansas will not tax this income. Even so, you must declare this income on your taxes along with any other income you may receive.
Social Security Disability Insurance (SSDI) Benefits
Again, Arkansas does not tax income from Social Security. This means that if you have a disability that prevents you from working and you receive benefits through SSDI, you do not have to pay taxes on this income.
Remember, while some people have no income other than SSDI benefits, some recipients are able to work in a limited capacity or have other sources of income. You will likely have to pay taxes on that income, but not SSDI – at least not in Arkansas.
Supplemental Security Income (SSI)
Some people receive SSI benefits that are need-based and are not taxed by Arkansas. However, like all other Social Security benefits and forms of income, you must explain these benefits on your taxes.
How Social Security Income May Be Taxed
While Arkansas does not tax any form of Social Security income, the federal government does. If you live in Arkansas, you will have to pay federal taxes even though you do not have to pay Arkansas state tax on Social Security.
Federal Taxes
While Arkansas does not tax income from Social Security, the federal government does. The federal government taxes Social Security income based on the total value of your combined income and your filing status (i.e., married or single). Your combined income includes your income from Social Security as well as any other income sources.
Up to 50% of your Social Security income may be taxed if your total combined income exceeds $25,000 but is lower than $34,000 and you are filing single. This threshold is $32,000, but less than $44,000 if you are married filing jointly
Up to 85% of your Social Security income may be taxed if you are filing single and your total combined income exceeds $34,000, or you are married filing jointly, and your income exceeds $44,000.
However, the feds do not tax all forms of Social Security income the same: Social Security retirement and disability benefits may be taxed, but the federal government does not tax SSI benefits.
Your Combined Income
According to the SSA, your Social Security income may be taxed, but not necessarily 100% of it. Additionally, how your Social Security is taxed depends on your “combined income.”
Your combined income includes your pre-tax income, tax-exempt interest income, and income from one-half of your annual Social Security benefits. If this combined income exceeds $34,000, you must pay taxes on 85% of your SSDI benefits.
Can I Reduce Taxes on My Social Security Income?
It may be possible to reduce your taxable income and shield some of your Social Security benefits from being taxed. For example, it may be possible to manage your combined income so it stays under $25,000.
One method is to place some of your income into a special needs trust or an ABLE account. You can also have someone else, such as a spouse, manage your finances instead of it being “your” income. An attorney may be able to help you determine the best way to protect your Social Security income.
FAQs About How Arkansas Taxes Social Security
Are Social Security Benefits Taxes in Arkansas?
Arkansas residents do not have to pay state income tax on their Social Security income (including disability and retirement benefits). However, the federal government may tax certain forms of Social Security income.
Does the Federal Government Tax Social Security Income?
Yes. The federal government may tax Social Security income, including SSDI and retirement benefits, but not all Social Security income is taxed the same way. How you are taxed may be based on what kind of benefits you receive and your “combined income.” The federal government does not tax need-based Social Security benefits.
How Are Taxes for Social Security Benefits Calculated?
Federal taxes on Social Security income are based on a person’s combined income. Your combined income includes all forms of income plus 50% of your Social Security benefits. If your combined income exceeds $25,000, you must pay taxes on up to 85% of your Social Security benefits at the rate dictated by your tax bracket. This limit is increased to $32,000 if you file your taxes jointly with a spouse.
How Can I Protect My Social Security Benefits from Being Taxed?
You may be able to protect your Social Security benefits from being taxed if you can manage your combined income to be under $25,000 per year ($32,000 if you file jointly with a spouse). Restricting withdrawals from retirement accounts or placing money in a special needs trust can help.
Do I Have to File Taxes if Social Security is My Sole Income?
Possibly. Many people live on Social Security with almost no other forms of income, and their daily budget is tight. If your combined income is under $25,000, or $32,000 if you are married and file jointly, you do not have to pay taxes on your Social Security income. If this is your only income, there is a good chance you are below this threshold and will not be taxed.
Talk to Our Arkansas Disability Benefits Lawyers About Your Social Security
Review your Social Security income in a free legal evaluation with our Arkansas social security benefits lawyers by calling our team at (479) 316-0438.