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Determining How Much of Your Social Security Benefits are Taxable

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By Amanda L. Richter, CPA

Over the years, clients have often asked whether or not their Social Security benefits are taxable. The answer is that it typically depends on your other income. In the worst case scenario, 85% of your Social Security benefits would be taxed when you file your tax return. Don’t worry, this does not mean that you have to pay 85% of your benefits back to the government, it merely means that up to 85% is includable in your adjusted gross income and taxed at your regular income tax rates.

To determine how much of your benefits are taxable, you must first determine your other income, including certain items otherwise excluded for tax purposes (i.e. tax exempt interest). You must also include your spouse’s income, if you file jointly. To this add half of the Social Security benefits you and your spouse received during the year. The figure you come up with is your total income plus half of your benefits. Once you have done this, you then apply the following rules:

  1. If your income plus half your social security benefits is not above $32,000 ($25,000 for single taxpayers), none of your Social Security benefits are taxed.
  2. If your income plus half your Social Security benefits exceeds $32,000, but is not more than $44,000, you will be taxed on:

(1) one half of the excess over $32,000, or

(2) one half of the benefits, whichever is lower.

Example (1): John and Jane have $20,000 in taxable dividends, $2,400 of tax-exempt interest, and combined Social Security benefits of $21,000. So, their income including the tax-exempt interest plus half their benefits is $32,900 ($20,000 plus $2,400 plus 1/2 of $21,000). They must include $450 of the benefits in gross income (1/2 ($32,900 − $32,000)). (If their combined Social Security benefits were $5,000, and their income plus half their benefits were $40,000, they would include $2,500 of the benefits in income: 1/2 ($40,000 − $32,000) equals $4,000, but 1/2 the $5,000 of benefits ($2,500) is lower, and the lower figure is used.)

For taxpayers that file as Single, the following rules apply:

  1. If your income plus half your benefits exceeds $25,000 but is not more than $34,000, you will be taxed on:

(1) one half of the excess over $25,000, or

(2) one half of the benefits, whichever is lower.

Example (1): Jane has $20,000 in taxable dividends, $2,400 of tax-exempt interest, and Social Security benefits of $9,000. So, Jane’s income plus half Jane’s Social Security benefits is $26,900 ($20,000 plus $2,400 plus 1/2 of $9,000). Jane must include $950 of the benefits in gross income (1/2 ($26,900 − $25,000)). (If Jane’s Social Security benefits were $3,000, and her income plus half of the Social Security benefits were $30,000, Jane would include $1,500 of the benefits in income: 1/2 ($30,000 − $25,000) equals $2,500, but 1/2 the $3,000 of benefits ($1,500) is lower, and therefore the lower figure is used.)

  1. If your income plus half your benefits exceeds $44,000 ($34,000 for single taxpayers), the computation in many cases grows far more complex. Generally, however, unless your income plus half your benefits is fairly close to $44,000 ($34,000 for single taxpayers), if you fall into this category, 85% of your SocialSecuritybenefits will be taxed.

If you know your social security benefits will be taxed, you can voluntarily arrange to have the Federal tax withheld from the payments by filing a Form W-4V. Otherwise, you may have to make estimated tax payments. Below is a sample of the 2018 IRS form W-4V. Please note that you can may only elect to have Federal tax withheld and not also State withholding.

 

Kit KatAsk Kit Kat – Humane Society of US Gains

Hook Law Center:  Kit Kat, what can you tell us about some of the accomplishments of the Humane Society of the Unites States (HSUS) in 2017?

Kit Kat: Well, I am pleased to say that there are many. It goes to show that organized advocacy can accomplish a lot. I will highlight a few. First, HSUS made the life of chickens at Perdue farms much better. In June of 2017, Perdue agreed to add natural light in the chicken houses, increased  space per chicken, the addition of perches, and even breeding other breeds besides only the quick-growing ones, who experience much pain because they are growing unnaturally fast.

Second, it worked to change where pet stores can obtain animals for sale. HSUS went undercover and  exposed an unethical pet store in NYC, who lied about their acceptance of dogs from puppy mills. The store was shut down. In California, its advocacy resulted in a new law which bans the sale of pets from commercial breeders in pet stores. It is the first state to do so. Now, in California, only pets from local shelters or rescue organizations can be sold in pet stores.

Third, HSUS has promoted dining options which are meat free. It has partnered with universities and hospitals around the country to offer meat-free menu items. Aramark and Compass Group, two of the largest food service companies in the country, have pledged to offer more plant-based menus and to market the new food choices.

Fourth, it has worked on behalf of horses. In Pennsylvania, horses have joined the ranks of cats and dogs, so that cruelty to all three classes of animals is a felony, rather than a summary offense or what other states call misdemeanors.

The list goes on and on. We do owe HSUS a great thank you! They have accomplished much, and they will continue to tirelessly work on behalf of these wonderful creatures, great and small. (“Our Work in 2017,” All Animals, January/February 2018, p. 22-23)

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Hook Law Center encourages you to share this newsletter with anyone who is interested in issues pertaining to the elderly, the disabled and their advocates. The information in this newsletter may be copied and distributed, without charge and without permission, but with appropriate citation to Hook Law Center, P.C. If you are interested in a free subscription to the Hook Law Center News, then please telephone us at 757-399-7506, e-mail us at mail@hooklawcenter.com or fax us at 757-397-1267.

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Posted on Thursday, March 1st, 2018. Filed under Senior Law News.
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