|
|
How is Social Security taxed?
04-16-2021, 05:33 PM
|
#1
|
Thinks s/he gets paid by the post
Join Date: Feb 2021
Posts: 2,351
|
How is Social Security taxed?
I've seen that if your income is over a certain amount (depending on filing status), up to 85% of your SS benefits are taxable. It looks like the cutoff is pretty low - $44,000 for MFJ. Is SS taxed as regular income or does it have a special rate like capital gains do? Is there a good worksheet or calculator you use for this?
|
|
|
|
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
04-16-2021, 05:41 PM
|
#2
|
Thinks s/he gets paid by the post
Join Date: Jan 2011
Location: Fair Lawn
Posts: 2,959
|
Whatever amount of SS is deemed taxable is part of your AGI, and taxed accordingly.
|
|
|
04-16-2021, 05:45 PM
|
#3
|
Thinks s/he gets paid by the post
Join Date: Feb 2021
Posts: 2,351
|
Quote:
Originally Posted by mystang52
Whatever amount of SS is deemed taxable is part of your AGI, and taxed accordingly.
|
Thanks. That's what I figured.
|
|
|
04-16-2021, 05:53 PM
|
#4
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2018
Location: Tampa
Posts: 11,296
|
__________________
TGIM
|
|
|
04-16-2021, 05:54 PM
|
#5
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,227
|
I just do simulations with my tax program (turbo tax). Pretty certain the online tax estimators like dinkytown and taxcaster handle it just fine too.
|
|
|
04-16-2021, 06:39 PM
|
#6
|
Thinks s/he gets paid by the post
Join Date: Jul 2014
Location: Undisclosed
Posts: 1,239
|
Up to 85% is taxable. It is taxed just like interest and ordinary dividends.
|
|
|
04-16-2021, 06:42 PM
|
#7
|
Full time employment: Posting here.
Join Date: Mar 2019
Posts: 759
|
I have put worksheet 1 from pub 915 into a spreadsheet to help me figure out how the taxability of social security is done. Basically, you need to compute your modified AGI which is 1/2 of your social security income plus the amounts from form 1040 lines 1, 2a, 2b, 3b, 4b, 5b, 7 and Schedule 1 line 9. The stuff you add in is basically wages, interest (including non-taxable interest), dividends, pensions, IRA distributions, capital gains. (It's a bit more complicated than that, but I can't put all of the IRS rules in a post ).
For MFJ, if that number is less than $32000, none of your social security is taxable. If it is between $32000 and $44000 then half of it is taxable. If it is over $44000 then 85% is taxable. It social security was your only source of income (not likely) you and spouse could receive up to $64000 in social security benefits and not be taxed. The entire computation is quite complicated so if you really want to analyze your situation I'd recommend using a "what if" feature in a tax program or building a spreadsheet that incorporates Form 1040 and Worksheet 1 from publication 915. The former is easier, I use the latter but check it against my tax program for debugging purposes.
|
|
|
04-16-2021, 06:59 PM
|
#9
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2007
Posts: 9,958
|
Quote:
Originally Posted by Dtail
|
My DH works part time farming and our tax guy did this yesterday. Hubby did not take his MRD from his retirement account in 2020. We funded my spousal IRA , the spousal IRA kicked our taxable SS down a bracket ...we ran the number for a Roth and an IRA because we were close to the 10% savers credit. I planned to do the Roth but due to the mondo savings on the SS we did the IRA which kicked me into the 20% savers credit and lowered our taxable SS number. FYI
This makes it seems like they are crediting you twice for your IRA, but what do I know..the total amount of SS listed as taxable was half.. minus the amount I funded to my IRA. My guy used his computer so I have to go with it.
|
|
|
04-16-2021, 07:03 PM
|
#10
|
Thinks s/he gets paid by the post
Join Date: Feb 2021
Posts: 2,351
|
Thanks everyone. A ton of great info in your responses. I appreciate it.
|
|
|
04-16-2021, 07:58 PM
|
#11
|
Thinks s/he gets paid by the post
Join Date: Feb 2007
Posts: 3,681
|
__________________
Married, both 69. DH retired June, 2010. I have a pleasant little part time job.
|
|
|
04-17-2021, 08:08 AM
|
#12
|
Full time employment: Posting here.
Join Date: Apr 2011
Location: Castro Valley
Posts: 788
|
Unfairly, IMO. The parameters for when it's taxed have never been adjusted for inflation.
|
|
|
04-17-2021, 08:16 AM
|
#13
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2008
Posts: 5,214
|
Just come live in Canada. They make the calculation of SS taxes so much easier (according to what I read. I haven't started taking mine yet). They tax 85% of SS regardless of your income!
|
|
|
04-17-2021, 08:55 AM
|
#14
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2009
Posts: 6,695
|
Quote:
Originally Posted by jldavid47
I have put worksheet 1 from pub 915 into a spreadsheet to help me figure out how the taxability of social security is done. Basically, you need to compute your modified AGI which is 1/2 of your social security income plus the amounts from form 1040 lines 1, 2a, 2b, 3b, 4b, 5b, 7 and Schedule 1 line 9. The stuff you add in is basically wages, interest (including non-taxable interest), dividends, pensions, IRA distributions, capital gains. (It's a bit more complicated than that, but I can't put all of the IRS rules in a post ).
For MFJ, if that number is less than $32000, none of your social security is taxable. If it is between $32000 and $44000 then half of it is taxable. If it is over $44000 then 85% is taxable. It social security was your only source of income (not likely) you and spouse could receive up to $64000 in social security benefits and not be taxed. The entire computation is quite complicated so if you really want to analyze your situation I'd recommend using a "what if" feature in a tax program or building a spreadsheet that incorporates Form 1040 and Worksheet 1 from publication 915. The former is easier, I use the latter but check it against my tax program for debugging purposes.
|
For the first time, I did my (90-year-old) dad's taxes. I had his 2019 return prepared by his paid preparer as a starting point. But with no RMD taken in 2020, they became very easy - zero tax liability, zero taxes withheld, a big nuthin!.
Part of doing my dad's taxes included creating a spreadsheet like my own but with a section which mimics the SS benefits worksheet like the one you described. Having his 2019 return acted as a check on my spreadsheet, so I could use it going forward to see what his 2021 taxes will be like (and save my dad another $150 due his tax preparer).
The what-if feature built into my spreadsheet also allows me to figure out what pct of his RMD should be withheld for taxes so he will have a tiny refund due (which can be forwarded into the following year, keeping things simple).
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.
"I want my money working for me instead of me working for my money!"
|
|
|
04-17-2021, 09:22 AM
|
#15
|
Administrator
Join Date: Apr 2006
Posts: 23,035
|
If you'll forgive me for tooting my own horn, you may find this post to be of assistance.
https://www.early-retirement.org/for...ml#post2506932
__________________
Living an analog life in the Digital Age.
|
|
|
04-17-2021, 09:35 AM
|
#16
|
Thinks s/he gets paid by the post
Join Date: Mar 2013
Location: Coronado
Posts: 3,706
|
Quote:
Originally Posted by scrabbler1
For the first time, I did my (90-year-old) dad's taxes. I had his 2019 return prepared by his paid preparer as a starting point. But with no RMD taken in 2020, they became very easy - zero tax liability, zero taxes withheld, a big nuthin!.
Part of doing my dad's taxes included creating a spreadsheet like my own but with a section which mimics the SS benefits worksheet like the one you described. Having his 2019 return acted as a check on my spreadsheet, so I could use it going forward to see what his 2021 taxes will be like (and save my dad another $150 due his tax preparer).
The what-if feature built into my spreadsheet also allows me to figure out what pct of his RMD should be withheld for taxes so he will have a tiny refund due (which can be forwarded into the following year, keeping things simple).
|
Did he even have a filing requirement for 2020? Most people with $0 liability don't have to file, so if this situation arises again, you can simplify further by not even doing a return for him. See IRS Pub 501 or use their little interview tool ( https://www.irs.gov/help/ita/do-i-ne...e-a-tax-return) for the exact filing requirements.
|
|
|
04-17-2021, 09:54 AM
|
#17
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2009
Posts: 6,695
|
Quote:
Originally Posted by cathy63
Did he even have a filing requirement for 2020? Most people with $0 liability don't have to file, so if this situation arises again, you can simplify further by not even doing a return for him. See IRS Pub 501 or use their little interview tool ( https://www.irs.gov/help/ita/do-i-ne...e-a-tax-return) for the exact filing requirements.
|
Ain't that a kick in the head! I didn't even have to file for him for 2020. I doubt this will arise again because the RMD, suspended in 2020, will boost his income above the cutoff in 2021 to not have to file.
Thanks for posting it, even though it's a minor bummer. His state form (New York) I still have to file despite a similar zero-zero situation because there is a long-term care credit which is cumulative even if not taken (and not likely to ever get claimed, but still......).
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.
"I want my money working for me instead of me working for my money!"
|
|
|
04-17-2021, 11:11 AM
|
#18
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,358
|
Quote:
Originally Posted by jkern
Unfairly, IMO. The parameters for when it's taxed have never been adjusted for inflation.
|
The second part isn't particularly relevant for most people who, with other income that they have, will have part of their SS taxable. What not indexing the threshold for inflation will do is to make more and more people subject to SS being taxable.
I think the most proper analogy for the taxation of SS is to a pension annuity or a non-deductible tIRA. If you go through the math of someone who makes annual contributions to a non-deductible IRA.
Try this: numerator = estimated SS taxes that you paid from your SS statement (middle of page 3) x 72% (not all SS is for retirement beenfits... some is for disability and survivor benefits)
denominator = your monthly FRA benefit * 12 * (age 82-FRA)... average age is 82 consistent with deferral crossover point
For me the result is 16%... so what I paid in in relation to my retirement benefits I can expect to receive is pretty close to the 15% that is excluded from tax.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
|
|
|
04-17-2021, 06:28 PM
|
#19
|
Thinks s/he gets paid by the post
Join Date: May 2019
Posts: 2,814
|
On the topic of SS taxes, there's a flaw in how taxes are calculated for Social Security benefits that results in after-tax "net" SS benefits being "cut" every year and have been for years, but most people aren't aware of this.
The SS formula for determining how much of your SS benefits are taxed is NOT indexed to inflation, so that threshold has not increased since it was first introduced in 1983. For a single person, if your income combined with half your SS benefits exceeds $25,000, you have to pay income tax on up to 50% of your SS benefits. If it exceeds $34,000, you have to pay income tax on up to 85% of your SS benefits. $25K in 1983 is worth a lot more than $25K in 2018. Since your retirement distributions and SS benefits will be adjusted with inflation, but NOT the $25,000/$34,000 thresholds, a greater percentage of your SS benefits will become taxable as each year passes (for married filing jointly, the thresholds are $32,000/$44,000.) It's a built-in tax increase, reducing "net" SS benefits, hurting seniors further. The greater your combined income and SS/2, the more you will be affected by this up to a max of 85% of your benefits being taxed! It's absurd, and those thresholds should be increased to reflect inflation since 1983.
The ways it is, you should play it safe by estimating that 85% of your SS benefits well into the future will be taxable. More information about this can be found in these references:
https://www.marketwatch.com/story/pe...xes-2019-01-07
https://www.fool.com/retirement/gene...-wreaking.aspx
http://www.foxnews.com/story/2007/03...-benefits.html
https://www.ssa.gov/policy/docs/issu...ip2015-02.html
I'm not one to support tax increases, but I would be open to paying higher FICA taxes to help shore up SS to prevent cuts to benefits and to prevent increasing the FTA for people within a decade of collecting SS.
At some point, the FTA will need increased for younger workers also as lifetime durations increase over time.
There was a bill introduced to address the problem of SS benefit taxation threshold levels to some degree, but it still wouldn't index it to inflation going forward. It doesn't look likes it's gone anywhere since it was last mentioned here.
https://www.congress.gov/bill/116th-...house-bill/860
https://larson.house.gov/sites/larso...019%200918.pdf
|
|
|
04-18-2021, 12:37 AM
|
#20
|
Full time employment: Posting here.
Join Date: Jul 2014
Posts: 868
|
Quote:
Originally Posted by GenXguy
On the topic of SS taxes, there's a flaw in how taxes are calculated for Social Security benefits that results in after-tax "net" SS benefits being "cut" every year and have been for years
|
Congress may not consider that a flaw....
|
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Thread Tools |
|
Display Modes |
Linear Mode
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|