Income Taxes And Your Social Security Benefit Information

SeaBreeze

SeaBreeze

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I haven't applied for Social Security yet, but I was looking around at some information about it. More at the Social Security website here.

Some of you have to pay federal income taxes on your Social Security benefits. This usually happens only if you have other substantial income in addition to your benefits (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return).


You will pay tax on only 85 percent of your Social Security benefits, based on Internal Revenue Service (IRS) rules. If you:



  • file a federal tax return as an "individual" and your combined income* is
    • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
    • more than $34,000, up to 85 percent of your benefits may be taxable.
  • file a joint return, and you and your spouse have a combined income* that is
    • between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
    • more than $44,000, up to 85 percent of your benefits may be taxable.
  • are married and file a separate tax return, you probably will pay taxes on your benefits.
Your adjusted gross income
+ Nontaxable interest
+ ½ of your Social Security benefits
= Your "combined income"


Each January, you will receive a Social Security Benefit Statement (Form SSA-1099) showing the amount of benefits you received in the previous year. You can use this Benefit Statement when you complete your federal income tax return to find out if your benefits are subject to tax.


If you currently live in the United States and you misplaced or didn't receive a Form SSA-1099 or SSA-1042S for the previous tax year, you can get an instant replacement form by using your online my Social Security account. If you don't already have an account, you can create one online. To get your replacement Form SSA-1099 or SSA-1042S, select the "Replacement Documents" tab to get the form.


If you do have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from your benefits.

For more information about taxation of benefits, read our Retirement Benefits booklet or IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.
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the taxing of ss is very complex once you exceed the limits .


If your combined income exceeds the threshold amounts, an IRS formula is applied to determine how much of your benefits are taxable. The result of these calculations will be that you pay taxes on the lower of:
  • 85% of your Social Security benefits
  • 50% of the benefits plus 85% of the amount of combined income over the second threshold amount
  • 50% of the amount of combined income over the first threshold amount, plus 35% of the amount of combined income over the second threshold amount
 
keep in mind too that you can get severely taxed on small amounts once you hit some of the limits . it becomes very trick because you have two moving targets . the more ss that gets taxed the more your income and the more ss that gets taxed ,round and round we go .

you can actually take an extra 1k out of an ira and see what amounts to almost a 50% marginal tax on it . as an example :

Harry is an individual with $36,000 of income but a hefty $22,000/year of Social Security benefits. His Social Security provisional income is $36,000 + $11,000 = $47,000, which is $13,000 over the upper threshold for individuals. As a result, $15,550 of his Social Security benefits are subject to taxation (which is 50% of the amount from $25,000 to $34,000, plus 85% of the excess of provisional income above the $34,000 threshold), which puts his AGI at $51,550. Even after a standard deduction and one personal exemption, Harry's taxable income would be $51,550 - $6,100 - $3,900 = $41,550, which places him in the 25% tax bracket.

If Harry now takes an additional $1,000 from his IRA, his provisional income increases to $48,000, his taxable Social Security benefits increase to $16,400, and his AGI rises to $53,400. The net result: Harry's AGI increased by $1,850 for "just" a $1,000 IRA withdrawal, and with a 25% tax bracket his liability will be $1,850 x 25% = $462.50, which equates to a whopping $462.50 / $1,000 = 46.25% marginal tax rate!
 

Last year 16.9% of my SS was taxed. I don't expect any change when I file the 2018 taxes. I live in N.J. where there's a pension exclusion of up to $15,000. I'm not sure if that was a determining factor.
 
Ugh, I'm dreading taxes for this year. I made a substantial rollover from IRA to NUA accounts and made a large pre-payment on taxes. So annoying.
 
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We've been in the 85% SS tax bracket forever....no problem. I just have some extra held out of the monthly payment, and the other sources of income, and at tax time, crunching the numbers with the H&R Block CD usually results in a nice refund. Personally, we feel lucky that we are afforded the "opportunity" to be taxed...rather than having to live payday to payday. I don't get upset about paying taxes....I just expect the politicians to manage that money properly.
 
it is actually the ones in the lower income ranges , who are skirting these limits that have to be the most careful .

as you see in my example a mere extra 1k in income can see 1/2 vanish in tax because they crossed certain thresholds marginally . those who are just around these limits for getting ss taxed can be the ones most likely to get burned .

michael kitces wrote an excellent article on the subject .

.https://www.kitces.com/blog/the-tax...ity-benefits-as-a-marginal-tax-rate-increase/
 
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