Taxing Social Security

Most people realize that a portion of a Social Security benefit can be taxable. It’s either up to 50% or up to 85% depending on adjusted income. The key triggers for a single person are $25,000 (50%) or $34,000 (85%) in combined income. Here is a simple explanation.

Keep in mind that the actual tax you may pay on a portion of your Social Security benefit is based on your income tax bracket.

My recent revelation is that it’s possible to have less than 50% of your Social Security benefit taxable, hence the use of “up to” in the explanation.

Say you’re a single filer who receives a monthly benefit of $1,543 (the average benefit after the cost of living increase in January 2021). Your total annual benefits would be $18,516. Half of that would be $9,258. Then let’s say you have a combined income of $30,000. The difference between your combined income and your base amount (which is $25,000 for single filers) is $5,000. So the taxable amount that you would enter on your federal income tax form is $5,000, because it is lower than half of your annual Social Security benefit.

SmartAsset

Keep in mind that thirteen states also tax a portion of Social Security benefits.

2 comments

  1. Thanks for sharing the example from SmartAsset for calculating taxable social security. It made my head hurt, and that’s why so many people use TurboTax.

    Liked by 1 person

  2. The $32,000 for a married couple is misleading. Until you do the math
    My wife and I will not have to pay any tax on our SS benefits until our income reaches $41,000. Then the tax would only be $30, on $17,000 SS Benefit. With current COLA projections, that will be in 4 to 5 years The $32,000 threshold needs to be inflation adjusted, but I am not sure that will ever happen. Each year in retirement I see my standard of living going down in retirement benefits received, mostly because of Medicare increases.

    It is a good thing I am able to save 30% of my net income. Looks like it will be needed in the very near future as inflation ramps up.

    Liked by 1 person

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