Many people believe the old adage that Social Security is not taxed. Years ago these benefits were not taxed, but today they can be depending on other factors.
Here are the rules for 2014 tax on Social Security, based on your filing status:
- Your combined income* is between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
- If your combined income is more than $34,000, up to 85 percent of your benefits may be taxable.
Married Filing Jointly
- If you and your spouse have a combined income that is between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
- If your combined income is more than $44,000, up to 85 percent of your benefits may be taxable.
Married Filing Separately
- You are out of luck, all of your benefits are usually taxable.
- Keep in mind that Married Filing Separately is a really bad classification and has a lot of tax penalties.
For every dollar of extra income you earn above the lower threshold, $0.50 of your Social Security benefits will be subject to tax. Above the upper threshold, each extra dollar of income adds $0.85 to the total benefits that the IRS will tax.
How to Calculate Combined Income
Your adjusted gross income
+ Nontaxable interest (like tax-exempt income from municipal bond interest)
+ ½ of your Social Security benefits
= Your “Combined Income