Social Security Taxable Portion

COMPUTING TAXABLE PORTION OF SOCIAL SECURITY BENEFITS

(a) GENERAL RULES

If a taxpayer receives social security benefits, a portion thereof is includible in the taxpayer's gross income if the taxpayer's provisional ncome exceeds a certain amount. For these purposes, provisional income includes modified adjusted gross income (MAGI), plus one-half of the taxpayer's social security benefit. Thus, before determining the taxable portion of social security benefits, a taxpayer must determine his MAGI.

For purposes of Code Section 86, a taxpayer's MAGI means adjusted gross income determined without regard to:

(1) social security benefits received;

(2) Code Section 135, relating to the exclusion from gross income of savings bonds proceeds used to pay expenses of higher education;

(3) Code Section 137, relating to the exclusion from gross income of qualified adoption expenses;

(4) Code Section 911, relating to the exclusion from gross income of foreign earned income and the housing cost amount of United States citizens or residents living abroad;

(5) Code Section 931, relating to the exclusion from gross income of the income from sources within Guam, American Samoa, and the Northern Mariana Islands; and

(6) Code Section 933, relating to the exclusion from gross income of the income from sources within Puerto Rico. Code Section 86(b)(2)(A).

The amount is then increased by the amount of tax exempt interest received or accrued by the taxpayer. Code Section 86(b)(2)(B).

In determining the taxable portion of any social security benefits eceived during the year, the following general rule applies. A taxpayer must include in gross income the lesser of:

(1) 50 percent of the taxpayer's social security benefits received during the taxable year; or

(2) 50 percent of the excess of the taxpayer's provisional income (i.e., modified adjusted gross income (as defined above), plus one-half of the taxpayer's social security benefit) over the applicable base amount. Code Section 86(a)(1).

The base amount is $25,000 for unmarried individuals, and $32,000 for married taxpayers filing a joint return.   The base amount is zero for a married taxpayer filing a separate return if the spouses do not live apart at all times during the taxable year. The base amount is not adjusted for inflation.

An additional amount of social security benefits may be included in a taxpayer's gross income if the taxpayer's provisional income (i.e., modified adjusted gross income (as defined above), plus one-half of the taxpayer's social security benefit) exceeds an adjusted base amount.

Under this rule, a taxpayer generally must include in gross income the lesser of:

(1) 85 percent of the social security benefits received during the taxable year; or

(2) the sum of:

(i) 85 percent of the excess of the taxpayer's provisional income over the applicable adjusted base amount; plus

(ii) the lesser of the amount included in income under Code Section 86(a)(1) or an amount equal to one-half of the difference between the adjusted base amount and the base amount of the taxpayer. Code Section 86(a)(2).

The adjusted base amount is $34,000 for unmarried individuals and $44,000 for married taxpayers filing a joint return. The adjusted base amount is zero for a married taxpayer filing a separate return if the spouses do not live apart at all times during the taxable year. Code Section 86(c)(2)(C). The adjusted base amount is not adjusted for inflation.

For these purposes, one-half of the difference between the adjusted baseamount and the base amount is $4,500 for unmarried individuals ($34,000 minus $25,000, divided by 2), and $6,000 for married taxpayers filing a joint return ($44,000 minus $32,000, divided by 2). For a married person who does not file a joint return and does not live apart from his spouse at all times during the taxable year, the difference between the adjusted base amount and the base amount is zero.