How To Determine If Your Social Security Retirement Benefits Are Taxed

How To Determine If Your Social Security Retirement Benefits Are Taxed



How to​ Determine If Your Social Security Retirement Benefits Are Taxed
Up to​ 85% of​ your Social Security retirement benefits may be taxable .​
Here’s how to​ find out how much is​ taxable and what you​ can do to​ reduce or​ eliminate any tax.
Of all the​ financial issues surrounding being a​ senior,​ the​ one that tops the​ list in​ terms of​ anger is​ the​ fact that,​ depending on​ the​ situation,​ Social Security retirement benefits are taxable .​
My experience indicates that some seniors are completely unaware of​ this fact .​
I​ have also had to​ sit and listen to​ the​ ranting of​ those who are aware .​
It goes something like this: I​ already paid tax on​ the​ earnings during my working years .​
The Social Security withdrawn from my income each pay check was a​ tax .​
This sounds like a​ tax on​ a​ tax .​
And on​ and on…
After letting the​ person blow off some steam,​ my response typically was,​ Hey,​ don’t shoot the​ messenger! I’m here to​ see if​ any of​ your Social Security benefits are taxed,​ if​ so,​ how much and what we can do to​ reduce or​ eliminate that tax .​
So let me take you​ through the​ first part of​ our conversation.
Whether or​ not you​ are taxed depends on:
1 .​
The amount of​ your income.
2 .​
Whether or​ not you​ have income from sources other than Social Security.
The amount of​ your tax depends on:
1 .​
Your marital filing status: single or​ married.
2 .​
The amount of​ your income.
The tax on​ Social Security retirement benefits was put into effect in​ 1983 .​
Tax was applied on​ up to​ 50% of​ benefits .​
In 1993 this was increased to​ 85% .​
Here’s how the​ calculation goes…
The first step is​ to​ calculate your provisional income .​
So grab last year’s tax return.
1 .​
Subtract your taxable S.S .​
benefits (line 20b) from your Adjust Gross Income (line 37).
2 .​
Add one half of​ your total S.S .​
benefits (line 20a).
3 .​
Add any tax exempt interest (line 8b).
4 .​
The result is​ your provisional income.
Once you​ know this number,​ you​ can apply the​ rules to​ determine how much of​ your S.S .​
is​ taxed .​
Again,​ this depends on​ whether you​ are married or​ single and the​ amount of​ your income.
Let’s look first at​ a​ married couple filing jointly .​
Here is​ the​ math…
1 .​
If your provisional income is​ below $32,​000,​ you​ don’t have a​ problem.
2 .​
For provisional income over $32,​000:
a .​
Take the​ provisional income between $32,​000 and $44,​000 and divide it​ by two.
b .​
If your provisional income is​ above $44,​000,​ take the​ total provisional income,​ subtract $44,​000 and multiply by 0.85.
c .​
Add 2a and 2b.
d .​
Multiply your total S.S .​
benefits (line 20a) by 0.85.
e .​
The lesser of​ your result on​ 2c and 2e above is​ the​ amount of​ your S.S .​
benefit taxed.
Now let’s look at​ the​ calculation for a​ single person…
1 .​
If your provisional income is​ below $25,​000,​ none of​ your S.S .​
benefits are taxable.
2 .​
For provisional incomes over $25,​000:
a .​
Take the​ provisional income between $34,​000 and $25,​000 and divide it​ by two.
b .​
If your provisional income is​ above $34,​000,​ subtract $34,​000 from your total provisional income and multiply by 0.85.
c .​
Add 2a and 2b.
d .​
Multiply your total S.S .​
benefit (line 20) by 0.85.
e .​
The lesser of​ your result on​ 2c and 2d above is​ the​ amount of​ your S.S .​
benefit taxed.
Now that you​ know whether or​ not any of​ your Social Security benefits are taxable,​ and if​ so,​ how much,​ the​ next step is​ to​ take a​ look at​ the​ ways you​ can reduce or​ eliminate this tax .​
In general,​ there are three solution categories:
1 .​
Reduce your interest income .​
The most common is​ interest on​ CDs.
2 .​
Reduce your dividend income.
3 .​
Reduce your tax exempt interest income.
Note: the​ calculations above use a​ very simplified approach .​
Your situation may have other factors that would affect the​ math .​
It is​ strongly advised that you​ consult with a​ qualified tax professional.




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