TAXABLE SOCIAL SECURITY
On a joint return, if total income, including social security, exceeds $ 48000, then half of the social security is taxed. If the total income exceeds $ 60,000 the amount over $60,000 is taxed at 85% from that point and up.
Situation No. 1: Taxpayer and spouse get $ 16,000 each in social security and their only other income is $16,000 from tax-exempt bonds. Result: No taxable income.
Situation No. 2: Same except the tax-exempt interest is $16,002
Social Security …..……….…$32,000
Tax Exempt Interest……….$16,002
Total Income……………....….$48,002
. Result: $1 taxable income. (Total income including tax-exempt interest and social security exceeds $ 48000 by $ 2, so half of the excess becomes the taxable portion of social security)
Situation No. 3.
Social Security……......$32,000
Tax Exempt Interest..16,000
IRA Withdrawal....……10,000
Total Income……....….$58,000
Result:$ 15000 taxable income [$16,000 Tax-exempt interest + $10,000 +$5,000 taxable social security] Half of ($ 58,000 - $48,000) = Taxable Social security of $ 5,000..
Situation No 4. (Income Exceeds $ 60,000)
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 = $6002 taxable social security..
Taxable Income:
IRA Withdrawal…...$ 12,002
Taxable SS………...……..6002
Taxable Income……..$ 18004
There is no tax due since the standard deduction and exemptions exceed the taxable income.
TOMORROW’S BLOG will illustrate the effect of adding a $ 100,000 Capital Gain which will result in 85% of the Social Security becoming taxable.
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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.
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