|Modern Social Security card. (Photo credit: Wikipedia)|
Receiving social security benefits is great, but be aware that, sometimes, you may have to pay taxes on as much as 85% of your social security benefits! You can find your total social security benefits on box 20a of the 1040 form, and, in the less popular box 20b, you’ll see the taxable amount of those benefits.
The Role of Combined Income
Your combined income and its amount will play a role in determining whether or not your social security benefits will be taxable.
Just in case you are not familiar with this term, “combined income” refers to your adjusted gross income plus nontaxable interest plus half of your social security benefits. If you need help determining what things go in which category- which can get pretty tricky- remember that you can always ask a professional accountant for help!
Basically, though, if you’re a single filer with less than $25,000 in combined income or a married filer with less than $34,000 in combined income, then your social security benefits won’t be taxed (lucky you!).
If, however, you earn more than these so-called “threshold amounts,” it’s simply a matter of determining how much of your Social Security benefits will be taxed.
Typically, what you will be forced to pay will be the lowest of any of the following amounts that are applicable to you:
· 85% of your social security benefits
· 50% of your combined income over the first threshold amount, in addition to 35% of your combined income over the second threshold amount
· 50% of your social security benefits plus 85% of the combined income over the second threshold amount.
As you can probably already tell, figuring out how much you have to pay can be quite confusing! So, if you determine that you are going to be taxed, it’s a very good idea to have an accountant help you to navigate through the process and make the right choices.