Many people may not realize that the Social Security benefits they receive may be taxable. All Social Security recipients should receive a Form SSA-1099 from the Social Security Administration which shows the total amount of their benefits. Taxing of your social security benefits depends on your income. If your only income is from social security benefits you will not be taxed.
However, if you have supplementary income sources your social security benefits may be taxed. If your social security benefits are taxed the taxable portion cannot exceed 85% of your total benefits. As your income rises and passes certain thresholds, the proportion of social security benefits that becomes taxable also increases.
The good news is that only 34% of recipients pay taxes on their social security benefits. Unfortunately, some states tax social security benefits. Verify the laws in your state to see if you are required to pay taxes on your benefits. The IRS provides 7 tips to help you determine if your social security benefits are taxable.
1. How much. To determine if any of your social security benefits are taxable depends on your total income and your marital status. Use the worksheet in the Form 1040A or Form 1040 Instruction booklet to determine if you will be taxed.
2. Taxable. If Social Security benefits were your only income for 2011 your benefits are not taxable.
3. Additional Income. If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status.
4. AGI. Your taxable benefits and modified adjusted gross income (AGI) are figured on the worksheet in the Form 1040A or Form 1040 Instruction booklet. Your tax software can also compute it for you.
5. Calculate. You can do the following quick computation to determine whether some of your benefits may be taxable:
• Add one-half of the total social security benefits you received to all your other income, including any tax-exempt interest and other exclusions from income.
• Compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.
6. The 2011 base amounts for benefits are:
• $32,000 for married couples filing jointly.
• $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouse at any time during the year.
• $0 for married persons filing separately who lived together during the year.
7. For additional information on taxing of social security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits on the IRS website or by calling 800-829-3676.
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