Some of our clients thought that social security benefits were 100% taxable. Others believed that none of it was. While the first were generally 100% wrong, the second are correct in special circumstances.
Benefits received from Social Security are disclosed on Form SSA-1099 (or RRB-1099 for railroad retirement). These forms merely report the amount received, and not the taxable amounts, which must be computed based on other income disclosed on the taxpayer’s return. Social Security benefits must be reported on either Form 1040 or 1040A. If none of the benefits are taxable, then none of them should be reported on the return.
Social security benefits include monthly retirement, survivor, and disability benefits. They do not include supplemental security income (SSI) payments, which are not taxable.
If part of your benefits are taxable, how much is taxable depends on the total amount of your benefits and other income. Generally, the higher that total amount, the greater the taxable part of your benefits.
If your only income received during the year was Social Security, your benefits are generally not taxable. If you have income in addition to your Social Security benefits, 50% or up to 85% of it might be taxable based on your provisional income and two formulas.
The provisional income is the sum of adjusted gross income (AGI) as modified (excluding Social Security and including any tax-exempt income and foreign earned income exclusion*) plus 50% of social security income received.
*If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is adjusted annually for inflation
The provisional income determines which of two formulas is used to determine the taxable social security (the lower threshold & the upper threshold formulas). Worksheets are made available by the IRS to check if your benefits might be taxable and to figure your taxable benefits.
I created this blog to help understand certain basic aspects of U.S. tax law. Of course, each situation is unique and nothing that is on this site will ever replace the expert advice of a tax professional.
Please do not hesitate to contact me should you have any question