Your Social Security Advisor

Taxing Social Security Benefits – Ask Rusty

social security benefits benefitDear Rusty: My wife started collecting Social Security at her full retirement age of 66. I am 60 and still working, and I think it is unfair that we must add her Social Security earnings to mine when we file taxes.  She has also worked some this year. Do we need to add this amount she received to our wages when we file?  Signed:  Overtaxed

Dear Overtaxed: We regularly hear from people who, like you, are upset to find that their Social Security benefits can contribute to their tax liability.  After all, you paid into Social Security with your taxable earnings so benefits shouldn’t be taxable, right? Well they weren’t when Social Security was first enacted in the late 1930’s. But back in 1983 Congress changed that to make up to 50% of benefits taxable if your income was over a certain limit, and then in 1993 another income threshold was added to make up to 85% of benefits taxable. And yes, since you’re married and filing jointly all of your combined income, including any earnings either of you have, affects the amount of your Social Security benefits that will be taxable. Without getting into the reasons or fairness, here’s how taxing Social Security works:

Social Security uses what’s called “provisional income” to determine if your benefits are taxable.  Provisional income includes your Adjusted Gross Income (AGI) with certain other things (i.e., tax exempt interest) added, including 50% of your total Social Security benefit, to arrive at your Modified Adjusted Gross Income (MAGI), or “provisional income”.  If your provisional income exceeds certain levels, a portion of your Social Security becomes taxable income.

The income levels to determine tax liability are different depending upon whether your tax filing status is “single” or “married filing jointly”.  Single people with provisional income of $25,000 or less and married couples filing jointly with provisional income of $32,000 or less pay no income taxes on their Social Security benefits.   For single people with provisional income between $25,000 and $34,000 and married people with provisional income between $32,000 and $44,000, up to 50% of their benefits are taxable. And for those over the higher income thresholds, up to 85% of benefits are taxable.

Only your income in excess of those thresholds counts when computing the amount of your Social Security that is taxable.  Take, for example, a couple whose total provisional income is $60,000, about $15,000 of which is one half of their total combined Social Security benefits.  Zero percent of the first $32,000 of provisional income is taxable; 50% of the income between $32,000 and $44,000 ($12,000) is taxable; and 85% of the income over $44,000 is taxable.  So to do the math for this example:

  • 0% of the first $32,000 is taxable ($0)
  • 50% of the income between $32,000-$44,000 is taxable (50% of $12,000 equals $6,000)
  • 85% of the income over $44,000 is taxable (85% of $16,000 equals $13,600)

The results of these calculations are added together to compute how much of your Social Security income is taxable.  In this example for a married couple with $60,000 in provisional income, $0+$6000+$13600 equals $19,600 in taxable Social Security income.  In other words, $19,600 of their total $30,000 Social Security benefit is taxable (about 65% in this example).  IRS Publication 915 includes a worksheet for these computations.

So yes, adding Social Security income to your wages has tax implications but it is, nevertheless, the current law.  Although there are active proposals in Congress to eliminate taxing of Social Security benefits, none have gained enough traction to predict success.  For this reason, you should always consult with a Tax Advisor to see how much of your Social Security benefit is taxable, or whenever any additional income might increase your tax liability.

The information presented in this article is intended for general information purposes only. The opinions and interpretations expressed are the viewpoints of the AMAC Foundation’s Social Security Advisory staff, trained and accredited under the National Social Security Advisors program of the National Social Security Association, LLC (NSSA). NSSA, the AMAC Foundation, and the Foundation’s Social Security Advisors are not affiliated with or endorsed by the United States Government, the Social Security Administration, or any other state government. Furthermore, the AMAC Foundation and its staff do not provide legal or accounting services. The Foundation welcomes questions from readers regarding Social Security issues. To submit a request, contact the Foundation at [email protected].


If You Enjoy Articles Like This - Subscribe to the AMAC Daily Newsletter
and Download the AMAC News App

Sign Up Today Download

If You Enjoy Articles Like This - Subscribe to the AMAC Daily Newsletter!


Subscribe
Notify of
16 Comments
Newest
Oldest Most Voted
Inline Feedbacks
View all comments
Sue Spalding
3 years ago

Great explanation! Simply my opinion but I’ve long had issues with the taxing of these benefits., considering they weren’t taxed for approximately 50 years or more. Secondly, Congress on one hand, from a valid taxability view point, is treating Social Security much like a pension, taxing based upon contributions and who makes them. On the other hand they threw all logic out of the proverbial window. Social Security (and Medicare) are funded equally by the American worker and their employer, each contributing 6.2% of the employees gross wages ( to a maximum, based on the wage cap established every year) for a total employee/employer contribution of 12.4% to achieve the 100% funding. Taxation of pensions (and certain employer sponsored disability benefit payments) are taxed based upon contributions (funding) and from whom the contributions are made. Since the contributions to fund Social Security is based upon an employer/employee cost sharing of 50% each, I question the legality and the constitutionality of more than 50% of Social Security being subject to potential taxation. Lastly, although the cost of everything has risen exponentially since the passage of this, in my humble opinion, horrible and unjust tax law, the thresholds for the income has never risen to keep up with the cost of simply waking up every morning . Once again, seniors who worked hard all of their life and played by the rules bear the burden of big government.

Susan Armona
4 years ago

Do deductions reduce the amount of taxable social security income? If so what are the best deductions other than the typical mortgage interest? Thank you

gailflaherty
4 years ago

couldurorganizationalongwiththeseotherconservativegrassrootsandteapartygroupscouldualllobbytax-freeforsocialsecurityrecipients;these88grassrootsgroupsalongwithurcompanylobbytoabolishtheirsandabolishthefederalreservealongwithanyteapartygroups;lobbytogreatlyreducefederalgovernmentcauseitstootoobigrightnow!!pleaseemailmebackonthissubject;thankuinadvanceforurkindattentiontothismatter!!!!

ken
4 years ago

u can always divorce your old lady! then you’ve cured one problem but added a big bite out of your income in another way!

Jerry Morton
4 years ago

Social Security Tax, What a crime. Line 20a on your 1040A long form. However there are about 126 House of Representatives trying to stop this with the” Massive Bill’, Republican Rep from Kentucky. Where is the House Ways and Means committee on this issue? What does the Chairman of the committee from Texas say about it? His name is Kevin ?. Anyway, as all of us seniors know the tax is stealing our savings every year. The 85% puts us all in a higher bracket, not a lower one. Boycott the tax, Stop paying it.

marie
4 years ago

I just read all of the replies below and it is just sad. We have all worked all or our lives, probably doing without things we would have liked to have had so that we could retire with a cushion for our retirement. We saved every penny would could, doing without. Maybe we could travel…….etc……..right? Here we are at the finish just wondering if we will have enough money to live while the entitlements just go on and on for illegals, refugees and the lazy. I, like Maria Rose, believe in helping people when necessary, but not FOREVER and generationally. Obama was the worst president yet. He gave so much to the “entitled” poor why would they want to work? Now, it is very hard to take away what was given. By the way, I hate that SS is called an entitlement. It is something we paid into and is a right, not an entitlement. The Dems want the illegals in because they want more votes. You think they can’t vote and then you hear that some stupid town in MD is allowing illegals (NOT undocumented, I am NOT PC), to vote on community issues. REALLY? Where do you think that is going with the culture of hate that is going on in the colleges due to the liberals that believe that black lives matter. ALL lives matter! We were kinda past the black issues until Obama became president. It is now back with a vengeance. It seems that some people want to make everything a race issue. Why can’t we just all be Americans and stand against ISSUES, not color or race? I was taught as a child that charity begins at home. So I think that until we can properly take care of ALL Americans, we need not be taking in ILLEGALS and REFUGEES from anywhere. We Americans have the biggest hearts and help whenever there is a natural disaster anywhere in the world. As we should. However, we cannot take care of the world’s problems, we can only help. I’m very disappointed that our elected officials aren’t working for “the people”. They are only pandering to what they think will get them elected again. There need to be term limits, but who is going to vote on that? Them? Right! Do I think that President Trump is perfect? NO! But what I do see is he is trying to make changes that will help “the people”. So it is not a surprise that even the Republicans don’t want to stand behind him as that would mean that the “swamp” would be dismantled and they might have to live on $200,000 a year instead of all the perks and lobby money they would lose. I am 62 and own my own small business for 25 years. Like Jerry, I have been putting money into a SEP and saving what I could. Where has it gotten me? Not a cushy retirement I can tell you that. I used to pay (before the Unaffordable Care Act) $800 a month for my healthcare with a $2,000 deductible. However, the deductible didn’t kick in unless I was in the hospital. Even when I went to the hospital I never actually paid the deductible. There was a $50 copay if I needed to go to the doctor, $20 for prescriptions. Now I pay $978 per month with a $7,150 deductible. There are no copays any longer, but last year I had bronchitis and it cost me over $1,000! I was stunned. Everything now goes against your deductible. So if I use my insurance essentially I will pay $19,500 before I would actually have anything paid by the insurance company. Luckily I’m healthy, but I’m 62. I know 5 healthy people this year alone that were my age or younger that had heart attacks. Two of them were at the gym several times a week. I think the stress of what is going on is more of a factor nowadays. So you know what? I’m so looking forward to 65. I can then go on SS benefits and it will at least bring down my medical costs………..well, that is if they don’t take that away in the next couple of years. Honestly, folks, our only hope is God. We all need to be praying more. I don’t care what religion you are, PRAY.

Rick
4 years ago

They at least need to index the income thresholds. Almost everything else is indexed. They’d probably have doubled by now and most seniors wouldn’t have to worry about it!

PaulE
4 years ago
Reply to  Rick

That would reduce the amount of money the government collects from the senior segment of society. As others here have already pointed out, the government needs to collect more and more taxes, in any way possible, in order to support the ever-growing social welfare state. With more and more illegals, along with our own growing “entitled class” demanding more and more handouts, the amount of money that the government has to steal (tax) from its current and former productive citizens has to increase to “feed the beast”.

Ruben Martinez
4 years ago

Even though i am considered “a minority”, I find my self in the same boat as most of you. I get social Security and I pay taxes. I still work, part time, (am 86 years old), so I still pay into the Social Security, and I also pay for Medicare, both from Social Security and my employer. We all talk about “getting the politicians that are in office and replace them”, however most who do complain, never vote. California is a great example, every year it is the same guys are re-elected. I agree lets get them out, but in order to do that we have to go out and vote.

PaulE
4 years ago
Reply to  Ruben Martinez

Very well said Ruben. By the way, don’t define yourself as “a minority”. That is how the Democrats view people in order to divide and conquer. You’re a senior citizen trying to live your life the best you can. Don’t let anyone tell you different.

Ruben Martinez
4 years ago
Reply to  PaulE

Thank you, PauIE. I do not consider myself as a minority, but it is the way many see “us”. I have always wondered what is it that makes one a minority? Like you say, I am trying to live the best I can, and the Lord has been good to me. Thanks again.

Maria Rose
4 years ago

Why would the government have an incentive to lower or eliminate tax on Social Security benefits, when they need those taxes to cover costs of giving benefits to those who aren’t contributing tax wise to the government.
I am all for helping those in need but someone who is able bodied should contribute back to system. I also don’t understand why there’s a maximum income level cut to collections of Social Security tax from income. Take Bernie Saunders, he collects Social Security and has income from earnings .

Sue Spalding
3 years ago
Reply to  Maria Rose

Because there is this little thing called FICA, the involuntary/mandatory deduction from every single American worker’s pay-check. FICA is a TAX… we pay this tax to fund our Social Security and Medicare accounts, we don’t have a choice. Then if we are lucky to live long enough to receive what is rightfully ours, we then must pay tax on a tax already paid. Social Security is a benefit previously paid for by the recipient. This tax on benefits is separate and distinct from taxes withheld from a paycheck when a Social Security recipient also has income from a job.

Jeanne Wall
4 years ago

Unfortunately for us baby boomers, 30-40 years ago when we were trying to plan our “retirement” needs, I remember being told “that there will probably be no Social Security when we retire”. Based on the SS laws then, I couldn’t figure out what financial planners were trying to say. All along our “leaders” have been eroding our ability to count on even a modest retirement plan in our future. Adding taxes, taking away benefits, no increase for cost of living based on REAL costs of necessities: food and shelter, transportation and stealing our “trust” funds while giving themselves cushy retirement benefits. What kind of representation is this? It is very hard to plan and budget for many of Americans yet the “poor” (of which middle america will fall into that category every year) can get food stamps to buy anything they want with only some limits and then healthcare for their problems are out of sight because they will buy sweets, junk food, continue smoking and alcohol and drugs. It makes no sense, we have no where to voice our protests under “political correctness” or be accused of being “uncaring”. The scales MUST be rebalanced. If our representatives can’t or won’t do their jobs, they need to be replaced or explain why they are having such trouble doing their job.

Nancy Mohrmann
4 years ago

Thank you Rusty for printing this. The information out there is very misleading; loads of articles ( including govt publications) still say that after full retirement age ” you can earn all you want” . So people are confusing the penalty for early retirement with taxes. In addition I find it outrageous that provisional income includes investment income, IRA distribution , and tax-free interest which to me appears contrdictoru

Ed Schrade
4 years ago
Reply to  Nancy Mohrmann

Hence the term ” Taxed to death “. Then there is the death tax. D C never saw a tax they didn’t like.

16
0
Would love your thoughts, please comment.x
()
x