What Is The Taxable Amount On Your Social Security Benefits?
Today, we're going to talk about taxation on Social Security. Yes, in fact, you do get taxed. Some people consider it a double tax⁉️⁉️
A couple of weeks ago I had a conversation with a client who was not happy that they were being taxed on their Social Security benefits, and understandably so! The government wants their piece. Now, your taxation depends on how much money you're making. So let's first take a look back and then give you some examples.
In 1983 the Amendments to the Social Security Act came out, which at this time 50% of your Social Security could be taxed. In 1993 the Deficit Reduction Act , went up to 85%. So between 0 and 85% of your Social Security can be taxed. So how do you figure out taxation on Social Security. You need to use what the IRS calls combined income. This is a combination of a AGI (adjusted gross income) plus tax exempt investments, that would be bonds, in 50% of your Social Security benefit. Then you apply that to these tables, threshold tables, whether you're single or married and filing joint.
Here is a chart to help you visualize what we are talking about, this is a lot of information, and it is easy to get confused.
Single, married, filing jointly, taxable benefit (the percentage that's going to be taxed) Single 0 -25k, 0-32k if married, 0% of Social Security will be taxed. Now, remember, I'm talking about just Social Security, not your federal or state tax rate, those are completely different. Single 25k-34k, 32k-44k for married, and 50% of your social security will be taxed. If you are above 34k-44k, 85% is now going to be taxed.
State taxes on Social Security
Every state is different.
⁉️DISCLAIMER⁉️ I am a financial adviser, not an accountant, however I do understand it. This is part of our planning process. I strongly suggest to either work with an accountant, or get software, because when you get your tax return you're going to fill out a social security worksheet.
It will all need to be filled out, everything that we have talked about will be on there. It will give you that 29,000 dollar amount we talked about, which is taxable.
This is why having a financial plan is so important. As always, thanks for reading!