Tax Rate on Social Security

[downrod]

I am trying to estimate what my taxes will be on my social security benefits.
I was playing around in the Flexible Retirement Planner and my plan had a 99% success rate. Then I realized that I hadn't factored in taxes on SS. I made a wild guess at 50% of my benefits would be taxed. My success rate went down to 13%..... WOW!!

How can I get a better estimate on how much of my SS will be taxed and at what rate?

This is depressing...

 

[Dtail]

https://www.irs.gov/pub/irs-pdf/p915.pdf

Look at Worksheet 1 on page 7. It is the the 2018 form, but will give you the generic calculations.

 

[ducky911]

Here in California there is no state tax on ss income.

Feds it is a matter of how much you make. I pay tax on 85% of my ss income.

 

[pb4uski]

I am trying to estimate what my taxes will be on my social security benefits.
I was playing around in the Flexible Retirement Planner and my plan had a 99% success rate. Then I realized that I hadn't factored in taxes on SS. I made a wild guess at 50% of my benefits would be taxed. My success rate went down to 13%..... WOW!!

How can I get a better estimate on how much of my SS will be taxed and at what rate?

This is depressing...

https://smartasset.com/retirement/is-social-security-income-taxable

You must be doing something wrong. IMO it is highly unlikely that taxes on SS would impact your success rate that significantly.

If you had $20,000 of SS income and were in the 12% tax bracket then your tax on SS would be, at MOST, $2,040 ($20,000 * 85% * 12%).

 

[Sunset]

OP - Sounds like you don't have much saved for retirement ?
Perhaps you are young and this is a message that living on SS is not a grand life.

 

[RunningBum]

LOL, factor in a very possible 23% benefit cut, and OP probably has no chance at all!

You sure you didn't calculate a 50% tax rate on all your SS benefits rather than 50% of your benefits being taxed at your marginal tax rate, possibly higher if you move into the next bracket?

 

[Sunset]

Couldn't OP have for example , a spending rate of 10K more than SS provides, and only $100K in savings ?

It seems to me that would fail often.

 

[Cut-Throat]

Couldn't OP have for example , a spending rate of 10K more than SS provides, and only $100K in savings ?

It seems to me that would fail often.

If that's the case S.S. would not be taxed at all....


My guess, is that the OP assumed that he would only receive 50% of his SS benefits, as the tax would be 50%....

 

[RunningBum]

Couldn't OP have for example , a spending rate of 10K more than SS provides, and only $100K in savings ?

It seems to me that would fail often.

Maybe, but here is the OP's "Hi" post: http://www.early-retirement.org/forums/f26/hello-soliciting-input-on-retirement-plan-97822.html

I don't feel like running the numbers with SS to see if/where the error is. OP overestimated taxes in that other thread, so maybe they've done it again somehow.

 

[lemming]

When you are calculating for your expenses-count your taxes as part of your expenses. Don't subtract 50% of your income.

 

[OAG]

And do not forget to deduct the Medicare Part B & D which you never see from your total SS Benefit (after you pay taxes on that premium). But even tho (barring any future cuts in benefit) it is probable your reduction will, at worst, be in the 25-30% neighborhood). I do not see about 25% of the overall SS benefits (single so my SS benefits hit 85% subject to taxes pretty quickly).

 

[Helena]

.

Unfortunately, this bill will probably never get out of committee...
but it it did, it would raise the income thresholds for taxing SS.

H.R.860 - Social Security 2100 Act
116th Congress (2019-2020)

" SEC. 104. Increase in threshold amounts and rate for inclusion of Social Security benefits in income.

(a) In general.—Subsection (a) of section 86 of the Internal Revenue Code of 1986 is amended to read as follows:

“(a) In general.—Gross income for the taxable year of any taxpayer described in subsection (b) (notwithstanding section 207 of the Social Security Act) includes Social Security benefits in an amount equal to the lesser of—

“(1) 85 percent of the Social Security benefits received during the taxable year, or

“(2) one-half of the excess described in subsection (b)(1).”.

(b) Base amount.—Subsection (c) of section 86 of such Code is amended to read as follows:

“(c) Base amount.—For purposes of this section, the term ‘base amount’ means—

“(1) except as otherwise provided in this paragraph, $50,000,

“(2) $100,000 in the case of a joint return.. "


https://www.congress.gov/bill/116th-congress/house-bill/860

.

 

[mountainsoft]

I am trying to estimate what my taxes will be on my social security benefits. I was playing around in the Flexible Retirement Planner and my plan had a 99% success rate. Then I realized that I hadn't factored in taxes on SS. I made a wild guess at 50% of my benefits would be taxed. My success rate went down to 13%..... WOW!! How can I get a better estimate on how much of my SS will be taxed and at what rate?

If your income from all sources (including SS benefits) is between 32K and 42K up to 50 percent of your social security benefits may be taxed. If your total income is more than $44K up to 85 percent may be taxable.

This is just the percentage of your social security that will be subject to tax. Your benefits will NOT be taxed at a 50% or 85% tax rate, and this only applies to the SS portion of your income.

For example, if you receive $2000/mo in benefits and your total income falls within the 50% range, $1000 of your benefits may be subject to whatever your normal tax rate is (12%, 28%, etc.).

In Flexible Retirement planner you can add social security benefits on the "Additional Inputs" screen. Then enter 50% or 85% in the field for "taxable percent" depending on what you expect your annual income to be.

 

[GenXguy]

If your income from all sources (including SS benefits) is between 32K and 42K up to 50 percent of your social security benefits may be taxed. If your total income is more than $44K up to 85 percent may be taxable..

This is incorrect.


1) The income used for that calculation includes only "half" of your SS benefits, so that should say "(including half of your SS benefits)".



https://www.fool.com/retirement/2016/06/06/social-security-tax-calculator-are-your-retirement.aspx


2) Also, the $32K threshold is for married filing jointly. For single filers, it's $25K.

 

[GenXguy]

I didn't see anyone mention this, but it needs to be said.


Social Security after-tax "net" benefits are already being "cut" and have been for years, but most people aren't aware of how this is being done.

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.fool.com/retirement/gen...ear-old-social-security-rule-is-wreaking.aspx
http://www.foxnews.com/story/2007/03/25/double-whammy-taxation-social-security-benefits.html
https://www.ssa.gov/policy/docs/issuepapers/ip2015-02.html

 

[mountainsoft]

1) The income used for that calculation includes only "half" of your SS benefits

Interesting, thanks for the correction. Somehow I never noticed that part of the calculation before. Good to know, though my old method would have erred on the side of caution anyway.

2) Also, the $32K threshold is for married filing jointly. For single filers, it's $25K.

Yep, another oversight on my part. I assumed married filing jointly.

 

[VanWinkle]

I didn't see anyone mention this, but it needs to be said.


Social Security after-tax "net" benefits are already being "cut" and have been for years, but most people aren't aware of how this is being done.

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.fool.com/retirement/gen...ear-old-social-security-rule-is-wreaking.aspx
http://www.foxnews.com/story/2007/03/25/double-whammy-taxation-social-security-benefits.html
https://www.ssa.gov/policy/docs/issuepapers/ip2015-02.html

Where exactly is AARP on this one. This is one of the hardest hitting taxes
on many senior citizens due to their reliance on SS income along with pensions and IRA withdrawals. This should be at the top of the list for
advocates of senior citizens. Where are they?

 

[Camping]

I learn a lot here. I thought 'taxed at 85%' meant that one would only get 15% of their SS benefit, the rest (85%) being taken away as a 'tax' for earning too much in retirement.

 

[pb4uski]

^^^ Egads! Don't give them any ideas!

 

[karen1972]

Thanks, this thread was very helpful and very depressing.

To be safe I think I'm just going to figure 1/2 of what SS says today.

A 25% cut off the top of SS because I reach FRA after 2034, and assume 25% expected tax rate (as current rates expire in 10 years) on 85% of that plus 5.75% local taxes which SS is not exempt puts it at $547 per $1000. Yep, depressing.

 

[kaneohe]

I learn a lot here. I thought 'taxed at 85%' meant that one would only get 15% of their SS benefit, the rest (85%) being taken away as a 'tax' for earning too much in retirement.

Who wrote 'taxed at 85%' ? Not in this thread....I don't think.......and it does mean what you said....... to me anyway. " 85% of it is taxed" is how folks said it here , not '85% is tax'. Little things matter and perhaps it might be better to follow pithy phrases w/ some illustrative examples to prevent misunderstanding.

 

[Spock]

Where exactly is AARP on this one. This is one of the hardest hitting taxes
on many senior citizens due to their reliance on SS income along with pensions and IRA withdrawals. This should be at the top of the list for
advocates of senior citizens. Where are they?

Awhile ago AARP was described as an insurance agent focusing on marketing to seniors, not a senior advocate as assumed.

 

[Chuckanut]

Where exactly is AARP on this one. This is one of the hardest hitting taxes
on many senior citizens due to their reliance on SS income along with pensions and IRA withdrawals. This should be at the top of the list for
advocates of senior citizens. Where are they?

+1

Thanks. I have been pointing this out for years as a way SS reform might cut SS benefits for higher income people while not appearing to actually cut them on the surface.

Where are the senior citizen advocates? Probably plotting ways for you to buy more insurance you don't need, and writing articles about aging celebrities.

 

[Camping]

Who wrote 'taxed at 85%' ? Not in this thread....I don't think.......and it does mean what you said....... to me anyway. " 85% of it is taxed" is how folks said it here , not '85% is tax'. Little things matter and perhaps it might be better to follow pithy phrases w/ some illustrative examples to prevent misunderstanding.

I wasn't quoting anyone, just emphasizing that what I thought was a reduction in benefit as being 'the tax'.

Before reading this thread I honestly thought ones SS benefit was reduced by up to 85% based on ones income. I figured that the Fed Gov would consider one who has income from other sources would not need as much SS so it would be reduced.

This actually would be good and fair way for those who really need it and help the fund last for more years before going broke.

 

[Bir48die]

I can see SS threshold being changed. I don't think SS should be tax exempt no matter what your income level. I knew I would be at 85% once I claimed for the rest of my life. However I think it should be tax exempt for all states income tax. Our state exempts but I think it's crappy that others have to pay