Contributed by KeriC, FreeTaxUSA Agent, Tax Pro
Are you age 67 and ready to start drawing Social Security income? Perhaps you’re at least 62 and ready to start receiving income now. Regardless of your age, there’s one important fact that you should know about Social Security benefits and taxes.
Every year the IRS reminds taxpayers who are starting or have been drawing Social Security benefits, that a portion of their benefits may be taxable.
Social security income may be nontaxable or partially taxable, but it is never fully taxable. If part of your benefit is taxable, how much is taxable depends on the total amount of your social security income, other income, and filing status. Generally, the higher your total other income, the greater the taxable portion of your benefits.
How to determine if any of your Social Security income will be taxable
Use this chart below, with your base income, to get an approximation of your taxable Social Security income.
Examples:
- You’re filing as married filing jointly. Your Social Security income is $20,000. You also had $30,000 of other income. Using the formula above to determine your base income to see if any of your Social Security benefits are taxable:
Since your base income $40,000 falls between $32,000 and $44,000, referring to the table above,50% of the base income amount over $32,000 would determine how much of your social security benefits are taxable. That amount would be $4,000 or (40,000-32,000) x .50, meaning $4,000 of your Social Security income would be subject to income tax.
- Same facts as above except your other income is $35,000.
Your base income now becomes $45,000. 50% of the base income amount between $32,000 and $44,000 will determine how much of your Social Security benefits are taxable, which would mean $6,000 or (44,000-32,000) x .50. Also, 85% of the base income amount above $44,000, which would mean an additional $850 or (45,000-44,000) x .50. Therefore, $6,850 (6,000+850) of your Social Security would be taxable.
- You’re filing married separately and lived with your spouse during the year. Your Social Security income is the same as above, $20,000. Regardless of what your other income is, since you’re choosing this filing status, 85% of your Social Security would be taxable. That amount is $17,000 (20,000 x .85).
Remember, regardless of your filing status or how high your income gets, no more than 85% of your Social Security income will be taxable. FreeTaxUSA software automatically handles all these calculations for you. All you do is enter your Form SSA-1099 Social Security Benefits, filing status, and other income.
There are also several other worksheets that can be used based on your situation, but Worksheet 1 in IRS Publication 915 is the most often used, and is the information referenced above. All other taxable Social Security worksheets can be found in this same publication.
