Taxes on Social Security Benefits
One great advantage of getting older is qualifying for Social Security Benefit Income, but did you know that you could have to pay taxes on these benefits?
To determine the taxable portion of these benefits, the provisional income has to be calculated. This is derived from adding the total income (excluding Social Security benefits), nontaxable interest, and half of your Social Security benefits (reported on Form SSA-1099 issued from the IRS).
For single taxpayers filing their 2021 individual income tax return, if your calculated provisional income isn’t above $25,000, none of your Social Security benefits are taxed. However, if your provisional income is between $25,001 and $34,000, you must report up to 50% of your Social Security benefits as income. Lastly, if your provisional income is more than $34,000, you need to report up to 85% of your Social Security benefits as income.
For married filing joint taxpayers completing their 2021 individual income tax return, if their joint provisional income is not above $32,000, none of the Social Security benefits are taxed. However, if the calculated provisional income is between $32,001 and $44,000, they must report up to 50% of their Social Security benefits as income. Lastly, if the provisional income is more than $44,000, they will need to report up to 85% of their Social Security benefits as income.
Since the taxable Social Security benefits are affected greatly by the filer's other substantial income for the year, any unplanned increase in income can have a significant tax cost. One way to help with being aware of the possible tax bracket change yearly is talking to your accountant. We are here to help make sure the change in income and taxes associated are expected at your individual income tax filing time.