The Question:

Is Social Security Taxable?

Objectives

Learn the basics of ascertaining the taxable portion of Social Security

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Does Other monthly income make social security become taxable?

Social Security is taxable only when income exceeds amounts listed within the law.  If the income does exceed the listed amount then a portion of the Social Security received is taxed at the same tax rate as the other income (with the exception of the capital gain rate or the alternative minimum tax amounts).

Taxation of Social Security Benefits

Depending on your total annual income, a portion of your Social Security benefits, or those of your spouse if filing jointly, may be subject to income tax.

Sample Scenario

If your income without the Social Security is $40,000 and you receive $600 per month Social Security, then you should expect 50% of your Social Security to be taxable.  You must pay income tax on $3,600 for the calendar year.

For 2002, the tax rate on the $43,600 is 15%.  The amount of tax on the Social Security alone is 15% of $3,600 that is $540 on the Social Security income only.

If the total of your taxable pensions, wages, interest, dividends, and other taxable income, plus any tax-exempt interest income, plus half of your Social Security benefits is more than a base amount, some of your benefits will be taxable.  The base amount is $0 for married filing separately who lived with their spouses at any time during the year; $25,000 for singles, heads of households, and married filing separately who did not live with their spouses; and $32,000 for those who are married filing jointly.  These dollar amounts are not indexed for inflation.

The amount of your Social Security benefits that you must include in taxable income depends on the total of your income plus half of your benefits.  A general "rule of thumb" is - the higher the total, the more benefits that must be included in taxable income.  You may have to pay income tax on anywhere from 50 percent to 85 percent of your Social Security benefits. 

Kit to Prepare for Your Adviser

1040 Retirement Income Organizers

Organizer - dividend and interest income

Organizer - dividends with adjustments

Organizer - interest with adjustments

Organizer - securities or real estate sales

Retirement Drawing Organizer

Tax Organizer - Annuity Income

Portfolio Income Organizer

1040 Entrance Interview

1040 Personal Data; 1040 Interview Questions

The following is a more technical explanation for the rules about taxable Social Security.

Do Not Confuse The Rules for Qualification and The Rules For Taxation

There are many confusing parts of the tax law - herein we shall narrow the focus to the effect of one item's effect on Social Security.  This item is the determination of the taxable portion of the Social Security received.

  Do not confuse two very different rules about the same subject - Social Security.   One rule is the amount of money one may earn without decreasing the amount of the Social Security check.  The other rule pertains to the taxation of the checks received - which is the subject herein.

The following will assist most of the circumstance for taxpayers.  Use caution and consult with Bob Parrish CPA PC to know whether you have circumstances not written of herein that will change the result.

The following are a few of the circumstances which are not covered in this computation:

1. You made contributions to a traditional IRA for 1999 and you were covered by a retirement plan at work or through self-employment.
2. You repaid any benefits in 1999 and your total repayments (box 4) were more than your total benefits for 1999 (box 3).
3. You file form 2555
4. You file form 2555EZ
5. You file form 4563
6. You file form 8815
7. you exclude employer-provided adoption benefits or,
8. income from sources within Puerto Rico.

To arrive at your modified AGI, start with your adjusted gross income and then add back the following items:

• Any income you excluded because of the foreign earned income exclusion.
• Any exclusion or deduction you claimed for foreign housing.
• Any interest income from series EE bonds that you were able to exclude because you paid qualified higher education expenses.
• Any employer-paid adoption expense you excluded.
• Any deduction you claimed for an annual (non-rollover) contribution to a regular IRA.

Note that you are not required to add back any contribution you made to an employer plan such as a 401k plan. If you are running up against the limit for modified AGI, one way to reduce that number is to make deductible contributions to an employer plan.

WARNINGS ABOUT THIS SITE'S CONTENT Bob Parrish CPA, P.C.