Do I have to pay income tax on my Social Security benefits? I just turned 62 and am considering early retirement. What can you tell me?

Ready to Retire

Dear Ready,

        When you start collecting your Social Security retirement benefits, a portion of it might be taxable depending on your total income level and marital status. Here’s what you should know.

Crunch your numbers

        About one-third of people who get Social Security have to pay income taxes on their benefits. To figure out if your benefits will be taxable, you’ll need to add up all of your taxable income from pensions, wages, interest, dividends and other sources, plus any tax- exempt interest you earned (such as interest on municipal bonds) and one-half of your Social Security benefits. (You’ll receive an SSA-1099 form in the mail each January reporting your Social Security benefits for the previous year.)

        To help you with the calculations, get a copy of IRS Publication 915 “Social Security and Equivalent Railroad Retirement Benefits,” which provides detailed instructions and worksheets. To download Publ 915 click here. To receive the publication through the mail, call the IRS at 800-829-3676.

Taxed or not

        After you do the math, Uncle Sam says that if you’re single and your total income from all of the listed sources is:

        • Less that $25,000, your Social Security will not be subject to federal income tax.

        • Between $25,000 and $34,000, up to 50 percent of your Social Security benefits will be taxed at your regular income-tax rate.

        • More than $34,000, up to 85 percent of your benefits will be taxed.

        If you’re married and filing jointly and the total from all sources is:

        • Less that $32,000, your Social Security won’t be taxed.

        • Between $32,000 and $44,000, up to 50 percent of your Social Security benefits will be taxed.

        • More than $44,000, up to 85 percent of your benefits will be taxed.

        If you’re married and file a separate return, you probably will pay taxes on your benefits.

How to file

        If you find that part of your Social Security benefits will be taxable, you’ll need to file using Form 1040 or Form 1040A. Also, if you do owe Uncle Sam, you’ll need to make quarterly estimated tax payments to the IRS, or you can choose to have it automatically withheld from your benefits.

        To have it withheld, you need to complete IRS Form W-4V, Voluntary Withholding Request, which can be downloaded by clicking here.

        You can choose to have seven percent, 10 percent, 15 percent or 25 percent of your total benefit payment withheld. If you subsequently decide you don’t want the taxes withheld, you can file another W-4V to stop the withholding.

State taxes

        In addition to the federal government, 14 states tax Social Security benefits to some extent. Contact the state tax agency for details or visit retirementliving.com. (Washington State does not have a state income tax.)

Savvy tip

        For more information on taxable Social Security benefits call the IRS help line at 800-829-1040, or stop by an IRS Taxpayer Assistance Center where you can get face-to-face help. For locations visit irs.gov/localcontacts.

What are the IRS filing requirements for seniors this year? I filed an income tax returns last year, but my income dropped a bit and I’m wondering if I may be off the hook this year.

Tired of Taxes

Dear Tired,

        According to the Tax Policy Center, more than half of all seniors in the U.S., age 65 and older, won’t have to file income tax returns this year mainly because their incomes are under the IRS filing requirements. Here’s a breakdown of the 2010 filing requirements along with a few other tax tips you should know.

Filing requirements

        If your “gross income” is below the IRS filing limits, you probably don’t have to file a federal tax return. Gross income includes all the income you receive that is not exempt from tax, not including Social Security benefits, unless you are married and filing separately.

        You probably don’t have to file this year if:

        • You are single and your 2010 gross income was less than $9,350 ($10,750 if you’re 65 or older).

        • You are married filing jointly and your gross income was under $18,700. If you or your spouse is 65 or older, the limit increases to $19,800. And if you’re both over 65, your income must be under $20,900 to not file.

        • You are head of household and your gross income was below $12,050 ($13,450 if age 65 or older).

        • You are married filing separately and your income was less than $3,650.

        • You are a qualifying widow(er) with a dependent child and your gross income was less than $15,050 ($16,150 if age 65 or older).

Required filing

        You also need to be aware that there are some special financial situations that require you to file a tax return, even if your gross income falls below the IRS filing requirement. For example, if you had net earnings from self-employment in 2010 of $400 or more, or if you owe any special taxes to the IRS such as alternative minimum tax or IRA tax penalties, you’ll probably need to file.

        To figure this out, the IRS offers a page on their web-site called “Do You Need to File a Federal Income Tax Return?” that includes a list of financial situations and a series of questions that will help you determine if you’re required to file, or if you should file (if you’re due a refund). You can access this page at doyouneedtofile.info, or you can get help over the phone by calling the IRS helpline at 800-829-1040.

Check your state

        Even if you’re not required to file a federal tax return, it doesn’t necessarily mean you’re also excused from filing state income taxes. Washington State does not have an income tax. For links to other state and local tax agencies see taxadmin.org – click on “Links.”

Send your senior questions to: Savvy Senior, P.O. Box 5443, Norman, OK 73070, or visit SavvySenior.org. Jim Miller is a contributor to the NBC Today show and author of “The Savvy Senior” book.