We all look forward to that age when we finally start collecting our social security benefits. That’s when it finally pays off to have paid in for all the years before. We often get questions about social security, specifically how to handle tax when it comes to social security benefits.
Joanne writes in: “Hi, I had a quick question about my social security payments and if I have to pay tax on them. I get about $1,300 a month. Does the amount I receive affect how much I pay in taxes, if I have to pay taxes at all? I just started receiving payments. Thank you.”
Joanne, great question. Social security is taxable, but we have to put a huge asterisk on that. And the reason we have to do that is because the amount that is taxable depends. Depends on what, you ask?
The amount of social security payments that are taxable depends on the amount of your other income, including tax-exempt interest (muni bonds).
The taxable portion of total social security payments is based on a formula, and the variables in that formula are based on other variables, like your filing status for tax purposes.
In 2019, if your filing status is Married Filing Jointly, then the formula goes like this (Taxable portion of your social security payments = (Gross Income (not including social security payments) + half of your total social security benefits (including both spouses’)) – $32,000). For all other filing statuses, replace the number $32,000 with $25,000, unless you are Married Filing Separately and lived with your spouse at any point during the year, then replace $32,000 with $0.
However, social security benefits are never more than 85% taxable. So if the number above is more than 85% of total benefits, then only 85% of your benefits are taxable.
So another example, Joanne, is if you receive $1,300 a month ($15,600/year), and have wages of $45,000 and file as Single, then your formula would look like this:
($45,000 + $7,800) – $25,000 = $27,800
Note that $27,800 is more than 85% of your total annual social security benefits, so the alternative formula would be:
$15,600 * 85% = $13,260
In this scenario, 85% of your social security benefits are taxable.
I hope reviewing this helped, Joanne.
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This article is not intended to be legal, tax, or financial advice. For help regarding your specific situation, please consult a local advisor.