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Calculating Taxes on Social Security Benefits

[Question]How do I calculate what portion of my Social Security benefits is taxable?

[Answer]If your only income is from Social Security, your benefits likely aren't taxable. But if you have other taxable income--such as from a job, freelancing, a pension or withdrawals from tax-deferred retirement savings--then 50% or 85% of your Social Security benefits may be subject to federal income taxes (and Social Security benefits may be taxable in 13 states, too).

SEE ALSO: How 10 Types of Retirement Income Get Taxed

To determine the percentage, calculate your "provisional income," which is your adjusted gross income (not counting Social Security benefits), plus any nontaxable interest and half of your Social Security benefits. If that total is less than $25,000 if you're single or $32,000 if married filing jointly, your Social Security benefits are not taxable. If it's between $25,000 and $34,000 on a single return or $32,000 to $44,000 on a joint return, then up to 50% of your Social Security benefits may be taxable. If your provisional income is more than $34,000 on a single return or $44,000 on a joint return, 85% of your benefits may be taxable.

For more information, see Income Taxes and Your Social Security Benefit.

This calculation, though, only applies to federal income taxes. Additionally, 13 states tax Social Security benefits. Some states, such as Vermont and North Dakota, tax Social Security benefits to the same extent as federal income taxes. But others use different calculations that often have higher income thresholds than the federal rules. In Kansas, for example, Social Security benefits are exempt from income tax for residents with a federal adjusted gross income of $75,000 or less. In Missouri, Social Security benefits are not taxed for single taxpayers with an adjusted gross income of less than $85,000 or married couples with an AGI of less than $100,000. And some income above that level may qualify for a partial exemption in Missouri.

For more information about the tax calculations for each state, see 13 States That Tax Social Security Benefits. Also see 37 States That Don't Tax Social Security Benefits, which shows how other types of taxes might hit retirees. Some states, for instance, that don't tax Social Security benefits may take a larger chunk of money from income, sales or property taxes. See our State-by-State Guide for Taxes on Retirees for the full tax picture and our list of the 10 most tax-friendly and the 10 least tax-friendly states for retirees.

SEE ALSO: Do You Know the Best Social Security Claiming Strategies?


Copyright 2018 The Kiplinger Washington Editors

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