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Taxation of Social Security Benefits
I. Introduction Of Social Security Income Taxation
When combined income, also known as provision income, exceeds certain thresholds for single and married tax filers.
A combined income comprises adjusted gross income (AGI), 50% of Social Security Income, and all tax-exempt interest.
Retirees with higher AGI are more likely to be subject to taxation and to have a large portion of their benefits taxed.
April 20, 1983.
Beginning in 1984 includes up to one-half of Social Security benefits as taxable income for taxpayers whose adjusted gross income, combined with half their benefits and any tax-exempt interest they may have exceeded $25,000 for a single taxpayer and $32,000 for married taxpayers filing jointly.
The legislation increased the limitation on the amount of benefits subject to taxation from 50 percent to 85 percent for single taxpayers with incomes over $34,000 and for taxpayers filing jointly with income over $44,000.
II. Determining Social Security Taxation Levels
Combined income, between $32,000 and $44,000 will be taxed at 50% on benefits.
If combined income exceeds $44,000 and up will be taxed at 85% on benefits.
Combined income, between $25,000 and $34,000 will be taxed at 50% on benefits.
If combined income exceeds $34,000 and up will be taxed at 85% on benefits.
Less than 10 percent of beneficiaries paid federal income tax on benefits whereas 52 percent of families paid income tax on their benefits.
Three times more today compared to 1983.
- Determining combined income.
- Determine the taxation threshold of how much if any of the income may be taxed.
- The actual calculation of how much will be taxed.
This is when required minimum distributions (RMDs) from IRA accounts must start, and it may cause a substantial increase in AGI.
Note: Increase in AGI may trigger more taxable on Social Security income received.
N1 = 85% of Social Security benefits.
N2 = 50% of Social Security benefits plus combined income over the 2nd threshold.
N3 = 50% of combined income over the 1st threshold plus 35% of combined income over the 2nd threshold.
The lowest of the N1, N2, or N3 will be the amount subject to taxation.
Note: First, the threshold for singles is $25,000 and $32,000 for married couples. Second, the threshold for singles is $34,000 and $44,000 for married couples.
