1/2 SS Benefits or Amount that is not taxed?

[Camas Lilly]

Trying to run some figures and was wondering that when they say "1/2 of your Social Security Benefits", do they mean "1/2" or the "total amount that is not taxed"? We are in the "up to 85%" taxed range, not the 50% taxed range.

Calculating Provisional Income:
Although IRC §86 does not use the term “provisional income,” it is commonly used to refer to this sum. To calculate provisional income, the taxpayer must add together adjusted gross income (AGI), non-exempt interest and one-half of the taxpayer’s social security benefits.

 

[Camas Lilly]

Also could you outline these for me? I want to make sure I am using correct figures because apparently I have written some down wrong:


1) AGI
2) MAGI
3) Provisional Income (aka Total Income)
4) Ordinary Income
5) Federal Taxes are figured using Taxable Income?
6) Social Security Taxes are figured using AGI?
7) Capital Gains Taxes are figured on MAGI?
8) Qualified Dividends are taxed when?
9) Ordinary Dividends are taxed at your current federal income tax rate?

 

[kaneohe]

Trying to run some figures and was wondering that when they say "1/2 of your Social Security Benefits", do they mean "1/2" or the "total amount that is not taxed"? We are in the "up to 85%" taxed range, not the 50% taxed range.

Calculating Provisional Income:
Although IRC §86 does not use the term “provisional income,” it is commonly used to refer to this sum. To calculate provisional income, the taxpayer must add together adjusted gross income (AGI), non-exempt interest and one-half of the taxpayer’s social security benefits.

"1/2"

 

[Camas Lilly]

Looking at my taxes, it looks like AGI already includes the taxable SS income. Is that not right?

 

[kaneohe]

Looking at my taxes, it looks like AGI already includes the taxable SS income. Is that not right?

yes . easier to see AGI components on prior yr 1040 which was more logical
https://www.irs.gov/pub/irs-prior/f1040--2017.pdf

again for 2017, there is this wksht for calculating taxable amount of SS.

https://apps.irs.gov/app/vita/content/globalmedia/social_security_benefits_worksheet_1040i.pdf

 

[kaneohe]

...................................................

Calculating Provisional Income:
Although IRC §86 does not use the term “provisional income,” it is commonly used to refer to this sum. To calculate provisional income, the taxpayer must add together adjusted gross income (AGI), non-exempt interest and one-half of the taxpayer’s social security benefits.

I think there may be an error here which perhaps is confusing you...........
AGI already includes the taxable amount of SS plus other income.
Adding 1/2 SS to this gives (taxable amt of SS + other income + 1/2 SS).

What you are looking for to calculate taxable amount of SS is
1/2 SS + other income. This is a simplification......should also include
tax exempt interest/ adjustments. Best to use the SS wksht w/ specific
line numbers for 1040.

Perhaps your quote should be? AGI less taxable amt of SS Plus 1/2 SS plus
tax-exempt interest? need to follow wksht to see if this makes sense.

 

[kaneohe]

..............................

1) AGI
2) MAGI
3) Provisional Income (aka Total Income)
4) Ordinary Income
5) Federal Taxes are figured using Taxable Income?
6) Social Security Taxes are figured using AGI?
7) Capital Gains Taxes are figured on MAGI?
8) Qualified Dividends are taxed when?
9) Ordinary Dividends are taxed at your current federal income tax rate?

2) Numerous MAGI exist. You need to define the context of your use.
4) Several types of income: qualified dividends, long term capital gains,
tax-exempt income.........these get special treatment and perhaps there are
others as well; the rest is ordinary income
5) Fed taxes calculated using "Taxable income" . This means a specific line on the 1040.......
6) You calculate the taxable amount of SS from the SS wksht. You then calculate the tax on that taxable amount along with other income using
the QDIV/LTCG wksht or something similar.
7,8)same as 6). There is a 0% tax rate on QDIV/LTCG if your "taxable income"
is less than some amount................roughly the upper limit on the "12%bracket less $200 or so).
9)Careful with that term "ordinary dividends"
the 1099-DIV https://www.irs.gov/pub/irs-pdf/f1099div.pdf
uses the terms : total ordinary dividends/qualified dividends for boxes 1a/1b
"total ordinary dividends" is used in calculation of AGI/taxable income .
You use the QDIV/LTCG wksht to calculate the taxes. You subtract out
QDIV/LTCG from taxable income. You calculate tax on QDIV/LTCG separately.
You calculate the tax on the remaining taxable income separately.
"Total ordinary dividends" includes qualified dividends which are taxed at a special rate. The remainder (non-qualified ?? dividends) is taxed at ordinary
income rates.

 

[Camas Lilly]

Thanks kaneohe.

So for Provisional Income, this makes more sense. The first explanation I read, did not specify leaving out SS benefits in step 1 and that was what was confusing.

1) Start with your gross income, which is the total amount of money you make not including your Social Security benefits.
2) Add any tax-free interest you received, such as interest from a municipal bond, which is always tax-exempt at the federal level.
3) Calculate 50% of your Social Security benefit and add that amount to your previous total.

Let me get through this and I'll come back if more questions.

 

[kaneohe]

You may want to provide feedback to the author of that confusing quote so that others don't suffer the same fate................