Ask The Advisor: February/March 2017

Ask The Advisor: February/March 2017

How Will Social Security Benefits Affect Our Income Taxes?

Q:  After I turned 67 this year, I started Social Security benefits while my wife and I continue to work.   Can you give us an idea how much my Social Security benefits will increase our income taxes?  Our joint income for 2016 was about $52,000.  I started Social Security in September and receive about $1,685 per month before deductions for Medicare.

A:  When you continue to work after starting benefits, your earnings are likely to cause a portion of your Social Security benefits to be taxable.  Some 56% of people taking TSCL’s annual Senior Survey in 2016 reported paying taxes on their Social Security benefits.  According to the Social Security Administration forecasts, both the number who pay taxes on their Social Security benefits, and the amount they pay, will grow over time.  Unlike income brackets that are adjusted annually, the income thresholds that subject Social Security benefits to taxation are fixed, while the income one needs to live on in retirement tends to grow over time.

Under current law, up to 85% of Social Security benefits can be taxable depending on your “provisional income.”  Provisional income is calculated using your adjusted gross income, plus any nontaxable interest, plus one-half of your Social Security income.

For couples filing jointly, no Social Security benefits would be taxable if your provisional income is under a base amount of $32,000.  Up to 50% of your Social Security benefits are taxable if your provisional income is between $32,000 and $44,000.  If your provisional income is more than $44,000, up to 85% of your Social Security benefits may be taxable.

For individuals, if income is under the $25,000 base, no Social Security benefits are taxable.  Up to 50% of benefits are taxable with incomes between $25,000 and $34,000.  Individuals with incomes of more than $34,000 may pay taxes on up to 85% of their benefits.

Each January you will receive a Social Security Benefit Statement (Form SSA-1099) showing the amount of benefits you received in the previous year.  You will need this when you complete your federal and state income tax returns.  The IRS supplies worksheets to help taxpayers figure the tax on Social Security benefits in Publication 915, Social Security and Equivalent Railroad Retirement Benefits, which you can download at www.IRS.gov.  For assistance with income taxes, check for tax preparation services in your local community through your senior centers, extension offices, libraries, or community colleges.

 

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