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Show Them How Much of Their Benefits Might Get Taxed
Tens of millions of retirees rely on Social Security for a large chunk of their retirement income, and many of them are surprised to find out that, under some circumstances, they'll have to share some of their hard-earned benefits with the IRS. Yet the rules for taxation of Social Security are extremely complicated.
The basic rules for how Social Security benefits get taxed aren't as hard to understand as the calculations themselves. The IRS starts by calculating what's known as modified adjusted gross income, which includes all your ordinary taxable income, but also adds in tax-exempt interest. Then, you take one-half of your Social Security benefits, and add them to the total. The resulting figure is the key to figuring out the extent to which your benefits will get taxed.
The threshold numbers at which taxes start to hit depend on your filing status. For joint filers, income higher than $32,000 may force you to include as much as 50% of your benefits as taxable income. You potentially may have to include an even higher 85% of your benefits if your income is higher than $44,000. The corresponding figures for single filers are $25,000 and $34,000.
Yet the way that Social Security taxation works doesn't involve a "cliff" at which a huge portion of your benefits get taxed. The rules are structured so that if you're only a little bit above the corresponding limits, then only a small amount of your benefits will be subject to tax. As your income climbs further above the threshold amounts, though, the likelihood gets greater that the 50% and 85% maximum ceiling amounts will get hit.
Did you know that up to 85% of your Social Security Benefits may be subject to income tax? If this is the case you may want to consider repositioning some of your other income to minimize how much of your Social Security Benefit may be taxed and thereby, maximize your retirement income sources.
For more information contact Greg Skogsberg at greg@twhagency.com
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For more information contact Greg Skogsberg at greg@twhagency.com
