Teacher Services: Staying Ahead of Your Taxes

Since 1994, the maximum amount of Social Security benefits subject to taxation have been 85%. Does this mean that 85% of the Social Security benefits of all taxpayers is now taxable? No. Benefit recipients apply a formula to determine 1) how much, if any, of their benefits would be taxable, and 2) the actual amount is taxable.

To What Extent Are the Benefits Taxable?
To determine if Social Security benefits are taxable, you must add adjusted gross income (AGI), tax exempt interest and one-half of the Social Security benefits received during the year. This is called “provisional income.” If this total exceeds $25,000 ($32,000 for married taxpayers filing jointly; $0 for married taxpayers filing separately who lived with their spouse at anytime during the year), then part of the Social Security benefits will be taxable.

How much is Taxable?
If your provisional income exceeds $25,000 ($32,000 for married taxpayers filing jointly) but not $34,000 ($44,000 for married taxpayers filing jointly), benefits subject to tax are the lesser of either (1) one-half the excess over $25,000 ($32,000 for married taxpayers filing jointly) or (2) one-half of the benefits received.

Example: A single taxpayer has an AGI of $25,000, tax exempt interest income of $2.000 and Social Security benefits of $6,000. The amount subject to tax is $2,500; that is, the lesser of (1) one-half of the excess of $5,000 [provisional income being $30,000 ($25,000+$2,000+$3,000)] or (2) $3,000, one-half of the Social Security benefits.
If provisional income exceeds $34,000 ($44,000 for married taxpayers filing jointly, $0 for married taxpayers filing separately who lived with their spouse at anytime during the year), benefits subject to tax are the lesser of (1) 85% of the benefits rec-eived, or (2) the sum of (a) the smaller of the amount taxable under prior law or $4,500 ($6,000 for married taxpayers filing jointly; $0 for married taxpayers filing separately who lived with their spouse at anytime during the year), plus (b) 85% of the excess over $34,000 ($44,000 married taxpayers filing jointly; $0 for married taxpayers filing separately who lived with their spouse at anytime during the year).
For the purpose of “2 (a)” for both single and joint filers, “the amount taxable under prior law” is calculated by first adding (1) AGI plus (2) 50% of the Social Security benefit plus (3) tax-exempt income. The amount subject to tax under prior law is the lesser of (1) one-half of the excess of that total over $25,000 for single filers ($32,000 for joint filers; $0 for married filing separately) or (2) one-half of the Social Security benefit.

Example: Taxpayers are married, filing jointly with AGI of $44,000 and have Social Security benefits of $16,000.
The amount subject to tax is $9,400; that is, $6,000 plus 85% of the provisional income in excess of $44,000 or $3,400 (85% of $4,000).

Jilly Jiu is a staffwriter for American Language Review.