Federal Tax On Social Security Income

[allanb]

State Of California: Married currently filing jointly. I made $16,240 in Social Security Income last year, I made an additional $6,000 in Real Estate Commissions. So without calculating the figures yet, I believe my SS will not be taxed. However, my wife has various sources of income, totaling about $96,000 non of which is Social Security Benefits as she is not old enough yet. The question is: Will her income be added to my additional income to determine if I am taxed on my Social Security Benefit? If the answer is yes, In regards to this scenario only would it be better to file for Married Filing Separately so I don't get taxed on my SS benefits?

Thanks in advance, Al

 

[Taxing Matters]

If you file a joint return, your combined income would easily surpass the $32,000 of income needed to start taxing your Social Security benefits. You'd end up paying tax on up to 85% of the benefits you received. You live in CA and as a result most if not all of your income is community income. That means that half of your total income would go on your return and half on her return if you filed separately. Again, the Social Security would end up subject to tax. Filing separately has several disadvantages over filing jointly as well. You'd want to run the numbers for both filing jointly and filing separately to see which way would result in the lower tax given your exact income, deductions, and credits. The IRS has extensive discussion of this in IRS Publication 915. Social Security has a brief discussion of it on one of its Benefits Planner pages. Most people benefit more from joint filing, but there are some situations in which filing separately works out better.

The bottom line for you is that some of your Social Security benefits will be taxable income. The maximum is 85% of your benefits being taxed. Publication 915 has worksheets to help you figure out exactly how much of your benefits will be taxed.

 

[Bali Hai Again]

You will likely discover that married filing separately won’t produce the best tax benefit. You paid SS tax all those years AND paid federal and state income taxes on top the SS tax. Now you are being taxed again on receiving benefits. It’s enough to make a grown man cry.

The below link might be useful to you.

https://www.aarp.org/money/taxes/1040_tax_calculator.html?cmp=KNC-DSO-COR-Money-Tax-22187-GOOG-1040TaxCalculator-Phrase-NonBrand&gclid=EAIaIQobChMIgsyKgILZ_AIVYYJbCh0KNwR-EAAYASAAEgJpO_D_BwE&gclsrc=aw.ds

 

[adjusterjack]

You paid SS tax all those years AND paid federal and state income taxes on top the SS tax. Now you are being taxed again on receiving benefits.

Not really being taxed "again."

You get more back in SS retirement benefits than you ever put in.

In 40 years of working my SS contributions totaled $55,601.37. That's right, I have all my W-2s since my first job in 1966. So sue me.

In the 14 years that I have been collecting SS I have collected $248,112

Very little of that has been taxed, even in the years that I was taking IRA distributions.

 

[Bali Hai Again]

Not really being taxed "again."

You get more back in SS retirement benefits than you ever put in.

In 40 years of working my SS contributions totaled $55,601.37. That's right, I have all my W-2s since my first job in 1966. So sue me.

In the 14 years that I have been collecting SS I have collected $248,112

Very little of that has been taxed, even in the years that I was taking IRA distributions.

My first job was in 1967, I can see the SS earnings and how much SS tax I paid along with employer contributions on the SS website. I don’t need W-2’s and I don’t want to sue you.

 

[Taxing Matters]

In 40 years of working my SS contributions totaled $55,601.37. That's right, I have all my W-2s since my first job in 1966. So sue me.

Social Security will give you that information online if you have an online account with the agency. And remember, your employer contributed an equal amount to Social Security. Presumably that would have gone to you in the absence of the tax. Now ask yourself if your SS benefits would match what you'd get if you'd stuffed the same money (your contributions and the employer's) into an annuity or other similar investment.

 

[Bali Hai Again]

Social Security will give you that information online if you have an online account with the agency. And remember, your employer contributed an equal amount to Social Security. Presumably that would have gone to you in the absence of the tax. Now ask yourself if your SS benefits would match what you'd get if you'd stuffed the same money (your contributions and the employer's) into an annuity or other similar investment.

Yep, compound that tax deferred figure by 10% per year (on average) for 40 years. You would pay the tax when withdrawn and be miles ahead.

 

[davew9128]

Not really being taxed "again."

You get more back in SS retirement benefits than you ever put in.

Well to be fair, if Social Security were taxed like an annuity (which it should), you should be able to recover your cost basis (FICA paid) as a non-taxable amount over time. Now you're never 100% taxed on the benefits, but in theory it should work differently than it does.