Income Tax on Social Security Income

Is income from Social Security "taxed" differently from other income. For example, if your income from other sources is high, do you pay a higher effective rate on Social Security pension income. Has this ever been the case in the past?
Reply to
Terry Faust
Terry, I wrote about this a couple months back, along with two very nice graphs, showing how a single woman, 65, with $33K in planned IRA distributions, can briefly visit the 46.25% bracket due to social security tax rules. When half of your Social Security benefits and other income exceed $32,000, your benefits become taxable. I rarely refer to my website when answering a question here, but this answers your question, and has a link to 'history of taxation of social security benefits.' JOE
formatting link
Reply to
If half your gross social security benefit plus all other income is more than the amount shown below, then some of your benefit will be included as part of your taxable income. Up to 85% of the benefit could be included in your taxable income. Filing Status threshold amount
MFJ $ 32,000
Single, HoH 25,000
MFS (but never lived together that year) 25,000
MFS but did live together even one day during the year $0
For quite a few years, and those figures have not been indexed to inflation.
Before that the maximum rate was 50%.
And long before that social security was never taxed.
-- ArtKamlet at a o l dot c o m Columbus OH K2PZH
Reply to
Arthur Kamlet (Terry Faust) posted:
No, Social Security Income is not segregated from your other income, so if your total income is enough that Social Security (SS) becomes taxable, the taxable amount would be added in to your total income and the tax calculated on that since figure. However, there is no doubt that once your Total income -- including 1/2 of your SS -- reaches $25,000 ($32,000 if MFJ), then _part of your social security gets added to your tax. There's a complex worksheet that computes exactly how much, which is included in the instructions for whichever form you're using -- and all software would automatically compute the amount and produce a copy of the worksheet. Now, technicallly, if your total income -- including the taxable amount of SS -- reaches a level that exposes you to a higher rate bracket, then the SS share would play a role in your higher tax rate ... but it's an indirect role. In other words, your SS isn't selectively taxed at a higher rate.
Reply to
Terry Faust writes:
Yes and no. :-)
To the extent that your benefits are taxable, they are taxed like any other ordinary income. However, because of the way the calculation of how much of your benefits are taxable in the first place works, if you are in the zone between where your benefits start to become taxable and the taxability cap (no more than 85% of your benefits can be taxable), your other income actually ends up being taxed significantly higher than the tax bracket rates would lead you to believe. For example, if you are single and half your SS plus all your other income is more than $34,000, each additional $100 of income causes an additional $85 of SS to become taxable (until you hit the 85% of benefits cap). In other words, if you're in this phase-in zone, an additional $100 of gross income increases your taxable income by $185. What this means is that if, for example, you are in the 15% bracket, the additional $100 of income increases your tax by $185 * 0.15 = $27.75. Which means that even though you think you're in the 15% bracket, you're really in a 27.75% bracket. -- Rich Carreiro
Reply to
Rich Carreiro
"Terry Faust" wrote
The taxable portion of Social Security benefits are taxed the same as all other ordinary income. In that it adds to your total taxable income, if that is what you want to point to for causing you to bump into a higher tax bracket (instead of wages, rents, etc), feel free. -- Paul A. Thomas, CPA Athens, Georgia
Reply to
Paul Thomas, CPA
From 1984 through 1993 the portion of Social Security benefits included in gross income ranged from 0 to 50 percent of the benefit. From 1994 to present the portion included gross income has ranged from 0 to 85 percent. The higher the modified AGI used in the calculation of taxable Social Security benefits, the higher the inclusion of Social Security benefits included in gross income. Take special note that the state income tax refunds and other itemized deduction recoveries are included in the calculation of taxable Social Security benefits. The refunds/recoveries can then be used to reduce allowable deductions, credits, exemptions, exclusions that are are subject to AGI or modified AGI phase-out. This means that the income used a state income tax overpayment AND the refund of the overpayment are used to increase the taxable portion of Social Security benefits and reduce deductions, credits, exemptions, and exclusion in the respective years. You might find the information at the following link helpful.
formatting link
`06Check out the references listed at the end of those comments. Cheers,
Reply to

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.