If you thought Uncle Sam would forget about taxes on your Social Security retirement benefits, think again. When you have other income, up to 85% of your benefit could be taxable. Your “combined income” determines whether — and how much of — your benefits will be subject to federal income tax.
What’s Combined Income?
Your combined income comprises all the income you receive from any source, with only a few exceptions. Combined income includes wages and self-employment income; rental income; investment income, such as interest, dividends, and capital gains; income from pensions and retirement accounts (but not tax-free Roth distributions); and — here’s the kicker — even tax-exempt interest from municipal bonds. In addition, you have to add in half your Social Security benefits when you are figuring your combined income.*
You won’t pay taxes on your Social Security if:
- Your combined income is not more than $25,000 and your filing status is single or head of household
- Your and your spouse’s combined income is not more than $32,000 and you file a joint return
Up to 50% of benefits are taxable if you have combined income between:
- $25,000 and $34,000 (single/head of household)
- $32,000 and $44,000 (married joint)
Up to 85% of benefits are taxable if you have combined income of more than:
- $34,000 (single/head of household)
- $44,000 (married joint)
And if you’re a married taxpayer filing a separate return, you’ll probably have to pay taxes on your benefits. Connect with us today for all the latest and most current tax rules and regulations.
* You have to take certain adjustments into account in the combined income calculation.
Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.