Are Your Social Security Payments Taxable?

Sometimes they are. Make sure you understand the IRS’s rules.

Do you receive social security benefits?  Maybe you have retiredTaxPlan0115image1_zpsc50d3928 and receive payments after working hard all your life.  Maybe you are disabled and receive payments as a result of your injury.

Either way, the big question you probably have is whether or not your payments are taxable.  How do you make that determination?

Amount of Benefits Received

At the end of the year, you should receive form SSA-1099.  This will provide the amount of benefits paid out and any taxes withheld, as well as Medicare premiums deducted from your benefits.  The Medicare premiums can be deducted as itemized deductions.  You will use the benefits paid out to determine the amount of taxes you will owe.

Base Amounts

The IRS has established a threshold to determine whether your benefits are taxable, based on your filing status. For 2014, these base amounts are:

  • $25,000 – for single, head of household, qualifying widow or widower with a dependent child, or married individuals filing separately who did not live with their spouse at any time during the year
  • $32,000 – for married couples filing jointly
  • $0 – for married persons filing separately who lived together at any time during the year

Taxable Amount Calculation

As you know, the tax code is complex and often difficult to TaxPlan0115image2_zps85e5d11funderstand. And it’s critical that you get it right. If Social Security payments are at least one element of your tax mix, we suggest you let us handle your tax preparation and filing.

However, if you choose to handle it yourself, here’s a glimpse of the complexity in this particular area.

First, take the amount of the benefits you received and divide it by half.  Then add to this amount any other amounts you received for taxable income, like interest and dividends, business income, and taxable distributions from an IRA, pension, or annuity.

If the total of these amounts is less than the amount of income adjustments you had (like deductible expenses as a teacher, moving expenses, alimony you paid, and contributions to an IRA or Health Savings Account), you will not owe anything on your benefits. 

If your income items total more than your adjustments, compare this to the base amounts.  If the base amount is more than your income less adjustments, you won’t owe anything on your social security income.

If the amount is more than the base amount, subtract the following from the net you just calculated:

  • $12,000 if married filing jointly
  • $9,000 if single, head of household, qualifying widow(er), or married filing separately (and you lived apart from your spouse for all of 2014)

If you still have not gone below zero, you’ll have more calculations to make.

Obviously, calculating the taxes you owe on Social Security payments can be a grueling process. Let us know if we can help you sort it out.

Visit with questions.

About Brenda J. McGivern, CPA

Brenda McGivern started her own certified public accounting and management consulting firm in October 2001. The full service CPA firm provides tax and accounting solutions to meet the needs of today's small business and individual. Brenda McGivern has become a trusted advisor and valuable resource her clients rely on for timely, accurate assistance when they need it. Before starting the firm, she worked as an accountant for three years at a local firm and prior to that five years at a large international CPA firm in Boston. She has performed the following tax services: federal, state and local tax planning, international tax planning, estate and succession planning, mergers and acquisitions, capital retention and IRS representation. She has also coordinated assurance engagements, such as financial statement audits, reviews and compilations from the planning phase through the reporting phase. She has prepared and reviewed regulatory filings for numerous regulatory agencies including the Security and Exchange Commission. Prior to these positions she was selected from over 2,000 candidates into an eight-person intensive financial management program at an international technology company. The program consisted of graduate level classroom study and two six-month rotational assignments in financial operations. She graduated cum laude from the University of Massachusetts at Amherst and holds a Bachelors Degree in Business Administration with a concentration in accounting. McGivern also holds a license in Massachusetts as a Certified Public Accountant and is a member of the American Society of Certified Public Accountants and the Massachusetts Society of Certified Public Accountants. She resides in Stoughton, Massachusetts with her husband Brian, and their sons Sean, Ryan and Conor and their dog, Davis.
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