85% OF SOCIAL SECURITY TAXED

IF YOUR INCOME EXCEEDS $60,000 part may be taxed at 50% and part at 85%
NOTE: Most often you hear that $32,000 is the starting point for the 50% taxability and $ 44,000 for the 85% level. This refers to half of your Social security ($32,000 X 50%) + another $16000--which is the same as $ 32,000 if you omit half the SS as non-taxable. Your Adjusted Gross income would be $32,000 derived by taking half the SS plus 16,000 of other income.

The same principal applies to 60,000 vs 44,000 for calculating the point at which 85% becomes taxable.

EXAMPLE--USING TOTAL INCOME:
Social Security ……........$32,000

Tax Exempt Interest...…16,000

IRA Withdrawal…....….…12,002

Total Income………....…...60,002

Taxable Social Security $ 6002

(60,000 –48,000) X 50% =6000

($ 60002 – 60000) X 85% = $1.70 (rounded to $ 2)

$6000 + $ 2 = $6002 taxable social security..

Adjusted Gross Income:

IRA Withdrawal…...$ 12,002

Taxable SS…………...…..6002

Taxable Income……..$ 18004

There is no tax due since the standard deduction and exemptions exceed the adjusted gross income.

SITUATION No 2 Income is same as previous Situation plus $ 100,000 Capital Gain.

Income from Example No. 4 = $ 60,002

Capital Gain……………......………100,000

Total Income…………….......……160,002

Taxable Social Security = $ 32,000 X 85% = 27,200

NOTE: Instead of taxing the entire excess over $ 48,000 at 85%, the tax is limited to 85% of total social security.

Adjusted Gross Income:

Social Security ……......$27200

Tax Exempt Interest.……..…0

IRA Withdrawal…….…12,002

Capital Gain…………...100,000

Adjusted Gross Income..139,202.

Tax after exemptions and standard deduction = 13194 minus $ 40 refund of telephone excise tax.

TOMORROW’S BLOG WILL show the effect of withdrawing an IRA purchased for more than its value when withdrawn.

LINKS and References – go to

IRS References

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This information is not intended to be advice to the recipient. In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this Blog was not intended or written to be used and cannot be used for the purposes of avoiding penalties.