It may surprise you that some of your social security benefits reported to the IRS could be taxable. It is important to determine if your benefits may be taxable so that you are not caught off guard during tax time.
The first step in determining if your benefits are taxable is to calculate your annual income. For social security calculation purposes, your income is the sum of one-half of your social security benefits reported on your SSA-1099, all of your other income (W-2 wages, dividends, pensions, etc.), and tax exempt interest. If your filing status is married filing jointly, you and your spouse have to combine your incomes and social security benefits when calculating the taxable portion of your benefits. Even if one of you did not receive any benefits for the year, you still must combine your incomes.
Once you have it calculated, you will compare this income to the base amount the IRS issues to determine if your social security benefits are taxable. The base amount for 2016 for the different filing statuses were the following:
$25,000 if you're single, head of household, or qualifying widow
$25,000 if you're married filing separately and lived apart from your spouse for the entire year
$32,000 if you're married filing jointly
$0 if you are married filing separately and lived with your spouse at any time during the tax year
If the sum of your income is greater than your base amount, a portion of your social security benefits maybe taxable. The difference between the base amount and the sum of income you calculated is not the taxable portion of your social security benefits. There is a different calculation to determine the actual taxable amount. Contact us at 1-866-287-9604 about how planning this additional income will affect your tax liability. We can give you options so that you are not surprised with a tax liability at the end of the year.