MLR

Are Social Security benefits safe from income tax?

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One seemingly simple question that often elicits a complex answer from tax advisers is, “Are my Social Security benefits taxable?”

The answer is, “Maybe.”

Prior to 1984, Social Security benefits were not subjected to income tax. Beginning in 1984, Congress decided that up to 85 percent of the benefits received from Social Security can be included in taxable income.

The higher your non-Social Security income, the greater the portion of your Social Security benefits that is taxed. Social Security benefits are entirely nontaxable if the sum of (1) one-half of your Social Security benefits, (2) all of your other gross income and (3) all of you tax-exempt interest income is below a threshold amount.

The threshold amount is:

  • $32,000 for married couples filing jointly
  • $25,000 for unmarried individuals and married couples filing separately, who did not live together at any time during the year
  • $0 for married couples filing separately, who lived together at any time during the year

Above those thresholds, a portion of your Social Security benefits is included in your taxable income.

At the highest income levels, if you are in the 39.6 percent marginal tax bracket, the tax effect of including 85 percent of Social Security benefits in taxable income effectively causes you to repay about one-third of your benefits to the federal government.