OP
OP
- Joined
- Apr 14, 2006
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- 23,055
For what it's worth, here is how I calculated the total income level at which you will hit taxation of 85% of your social security.
This calculation requires that you use the IRS worksheet found here. https://www.irs.gov/pub/irs-pdf/p915.pdf#page=16 This calculation is for Married Filing Jointly. The principles work the same for Single although the precise numbers are different, as shown in the form.
Line 1 of the sheet is known. It is your total social security for the year. What we are going to do is work backward from Line 19 to calculate Line 3 and then add it to Line 1. So let’s get started:
1. Put your total Social Security payment for the year (monthly x 12) in Line 1 and put ½ of that number in Line 2.
2. Put $32,000 in Line 9 and $12,000 in Line 11. Note that, together, these constitute the maximum $44,000 exclusion from the beginning of the 85% taxation.
3. Now look at Line 19, which tells you how much of your SS is taxable. Note that it is the lesser of Line 18 or Line 17.
4. Look at line 18. Note that it is 85% of Line 1, because by law that is the maximum amount of your social security that can be taxable. So we put 85% of Line 1 here.
5. We are looking for the case where Line 17 - the calculated amount -- is exactly equal to Line 18 – the legal maximum. Because if Line 17 is less than Line 18, then the percentage taxable is less than 85%, and if Line 17 is greater, the calculated amount would be greater than 85% and Line 18 would control to keep it at 85%. So, we put the amount of Line 18 (85% of Line 1) also in Line 17.
6. Since we are assuming that your income is over the $44,000 exclusion amount, we can assume that Line 10 will always be larger than Line 11 (which is $12,000, as noted above). Accordingly, in Line 13 (the smaller of Line 10 or 11) we will also put $12,000. Line 14 is 50% of line 13, so we put in $6000.
7. Then we put in Line 15 either $6000 or ½ of your social security (smaller of Line 14 or line 2)
8. Now, as the form shows, Line 17 equals Line 15 plus Line 16. But we have previously determined that we want to make Line 17 = Line 18 = 85% of Line 1. So, we can calculate Line 16 by subtracting Line 15 from Line 17.
9. Note the Line 16 is 85% of Line 12, so we divide Line 16 by 0.85 to get Line 12.
10. Then we add Line 11 ($12,000) and Line 12 to get Line 10. We then add Line 10 and Line 9 ($32,000) to get Line 8. This is our total provisional income that results in taxation of 85% of social security.
11. Assume there are no adjustments in Line 7, then Line 6 = Line 8. It comprises ½ of your social security (Line 2) plus your other income for the year (Line 3 = total roth conversion income, dividends, etc.) (Assuming that there are zero adjustments in both lines 4 and 5). So we subtract Line 2 from Line 6 and that tells us how much income other than social security you can make.
12. So, for your total income, including 100% of social security, add Line 3 to Line 1. If you make more than this amount, 85% of your social security is taxable.
AND HERE IS THE SHORTCUT: Yearly social security = SS; Other Income = OI; Total Income = TI
TI = OI +SS
FOR SS > $12,000 per year
OI = ((.85 x SS) – 6000))/.85) + 44000 - (.5 x SS)
TI = ((.85 x SS) – 6000))/.85) + 44000 - (.5 x SS) + SS
= .85SS/.85 – 6000/.85 + 44000 +.5SS
= SS – 7059 + 44000 + .5SS
TI = 1.5 SS + 36941
FOR SS < $12,000 per year
OI = (((.85 x SS) – (.5 x SS))/.85) + 44,000 – (.5 x SS)
TI = (((.85 x SS) – (.5 x SS))/.85) + 44,000 – (.5 x SS) + SS
= .35SS/.85 + 44000 + .5 SS
= .4118 SS + 44000 + .5 S
TI = .9118 SS + 44000
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