How is Social Security Taxed || How Much of Your Social Security Income is Taxable
How is Social Security Taxed? What part of my social security income is taxable? These are just a few of the questions I have received lately about the taxability of social security. When you think about your social security benefit, oftentimes you don’t think, “How Much of my social security income is taxable?” No, normally you’re asking questions like, “When should I start social security” or “What is my social security benefit at 62 or 67?” Yes, those are great questions about social security, but I believe the bigger questions about social security are in the amount of taxes you will pay on your social security income.
(Please keep in mind that your social security is not TAXED at 50% or 85%, but 50-85% of your social security benefit can be used in the computation of your income tax. Please seek the guidance of your CPA, tax advisor, Financial Advisor, or myself for more detailed questions.)
How do you calculate the taxes on your social security income? Well, in 1994 Congress laid out the income thresholds for how social security would be taxed. These income levels are based on how you file your taxes every year. Also, these income levels are some of the only income thresholds in the IRS code that do not get any type of COLA or inflation bump. Below are the social security tax income thresholds:
Single File: Under $25,000 -0% Taxed
$25,000-$34000-50% Taxed
Over $44,000-85% Taxed
Married Filing Jointly: Under $32,000-0% Taxed
$32,000-$44,000-50% Taxed
Over $44,000-85% Taxed
I’m asked quite often, “Is Social Security taxed after age 66” or “Is Social Security taxed after age 70” and my answer is, “YES!” Social Security is always taxable, it just depends if your social security check will be taxed.
How do you calculate your social security tax? The IRS uses a formula called provisional income to calculate your social security tax. Provision income is calculated as follows:
Modified Adjusted Gross Income + 50% of your social security check + any tax free interest = Provisional Income
Depending on the formula above will determine how much of your social security is included in your taxable income. For example: If you are married and you take $30,000 out of your IRA for retirement income and your spouse and you collect $25,000 in social security benefit, that equals $55,000 in total retirement income. Your provisional income takes the $30,000 in retirement income from your IRA + $12,500 of social security benefits =$42,500 in provisional income. SO, that means this couples social security is taxed somewhere between 50%-85%.
I hope this has helped answer the question, “Is Social Security Taxed and How Much of Your Social Security Income is Taxable?” Thank you for watching and reading!
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