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Social Security Can Be Taxed…So, How Does it Work?

January 10th, 2011 by Filed under: Tax News, Tax Tips

social security taxesThe taxation on Social Security (SS) benefits depends primarily on your modified adjusted gross income (MAGI). SS benefits are considered to be a form of income and social security can be garnished by the IRS if you do not pay taxes owed . Much like any other form of income, Social Security income is also subject to federal and state income tax. Up to 85% of Social Security benefits may be considered taxable according to the IRS guidelines.

Typically people receiving Social Security benefits are subject to being taxed because they exceed the minimum tax bracket according to their MAGI. Taxation occurs usually if the filer has other income in addition to the Social Security benefit. This additional income can include interest, dividends, wages or self employment earnings which are considered taxable income in the eyes of the IRS.

To determine whether or not you are required to pay taxes on your Social Security benefit, you must first determine your tax filing status and whether the amount of your yearly income exceeds the amount that is considered to be in the tax free bracket.

Taxable income is assessed based on the following individual income brackets:

  • Individuals who receive Social Security Benefits regardless of filing status that make less than $25,000 are not required to pay taxes.
  • Income levels between $25,000 and $34,000 per year may be required to pay taxes on up to 50% of their income.
  • Income levels above $34,000 per year may be required to pay taxes on up to 85% of their income.

Married couples filing taxes jointly will be required to pay taxes based on following income brackets:

  • Social Security Benefits that are less than $32,000 per year are exempt from paying taxes.
  • Income levels between $32,000 and $44,000 per year may be required to pay taxes on up to 50% of their income.
  • Income levels above $44,000 per year may be required to pay taxes on up to 85% of their income.

Calculating Taxable Income

To calculate the taxable income including Social Security benefits it is necessary to determine your provisional income.  Provisional income is the amount that is subject to taxation.  Provisional income is also called modified adjusted gross income (MAGI) and is subject to taxation according to the IRS. The total provisional income includes the following:

  • Tax exempt interest amounts earned from bonds.
  • 50% of the current year’s Social Security income.
  • Tax-free fringe benefits.

Adding together anything that the IRS considers provisional income will bring you to the total amount that is taxable. This amount will determine what you will owe at the end of the tax year.  You will then check your filing status and your income level to determine the tax bracket that you will fall into.  Your provisional income number and tax filing status will determine the amount that you may owe in taxes. This is the amount that you will include on your tax form.

People are entitled to full Social Security benefits if they have reached full retirement age as defined by federal law and have earned enough work credits to be eligible for benefits. Typically people need 40 credits to qualify for full Social Security benefits.  Full retirement age is 66 for individuals born from 1943 through 1954 and 67 for people born in 1960 and beyond.  For individuals who work and are receiving Social Security benefits it is important to remain up to date with the changes to the tax laws and how they may affect individual taxes.

  • factchecker

    To the author, the amount is not adjusted for inflation and has not been since the 1980s, in other words sooner or later everyone will pay tax on SS unless you are dirt poor, in the 1980s,
    perhaps the best thing to do is not to rely on SS and invest in capital gains, SS is important,
    but this provision is not noted carefully, on question if your SS is above 25k or 34k do you have to pay taxes on it?


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