Ask the Advisor: February 2013

Ask the Advisor: February 2013

Q:  I started widow's benefits last year.  Do I have to declare those payments on my income taxes?

A:  Yes.  Social Security benefits, no matter what the type, fall under the same tax rules.  Depending on your income and filing status, up to 85 percent of your Social Security benefits may be taxable.  Here’s how to estimate if you owe anything:

  1. Determine your modified adjusted gross income.  This includes all taxable income like wages, pensions, interest and dividends.  Do not count itemized deductions, they won’t be used in this calculation.
  2. Add one half of your Social Security benefits.  Use the amount from box 5 of Form SSA-1099.
  3. Enter any tax-exempt interest income (such as interest on municipal bonds).
  4. The total is your "provisional income."

Compare your provisional income with the IRS base amounts for taxing Social Security.  Your Social Security benefits may be exempt from tax if the base amount is not more than $25,000 and your filing status is single, head of household, or qualifying widow(er).  The base amount for married couples filing jointly is $32,000.

If your provisional income as a widow (single) is over $25,000 but no more than $34,000, up to 50% of benefits are taxable.  (For couples filing jointly, between $32,000 and $44,000.)  If your provisional income is more than $34,000 (or $44,000 for couples) then up to 85% of Social Security benefits are taxable.

To compute the taxable portion of your benefits see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.  You can download forms and publications at  Free tax assistance for seniors is also available in most areas of the country.  Check your local newspapers or call 1-800-906-9887 to find a site near you.