SOCIAL SECURITY TAXES
How to lighten the tax burden.
Depending on your retirement income, you may be paying tax on over 50% of your Social Security benefits. Here's how it works:
If you are married and file jointly, with a retirement provisional income between:
- $0-$32k: No tax imposed on your Social Security benefits
- $23K-$44K: Up to 50% of yoru Social Security is taxed
- $44k and up: 50% -85% of your Social Security benefits are taxed
What is provisional income?
Your total income, incuding certain tax-exempt income, used for determinig if your Social Security benefits are taxable.
What constitutes provisional income?
- Pension
- Interest Income
- Tax-exempt benefits
- 50% of Social Security benefits
Case Study:
The following hypothetical case study is based on teh Johnson's, a retired married couple. Each parter is over age 65, and they live primarily off of their combined pension income. They have additional assets that count towards their provisional income.
| Assets: | Provisional Income: | ||
| Pension Income | $24,000 | Pension Income | $24,000 |
| Dividend Income | $4,000 | Taxable Income | $15,000 |
| Municipal bond income | $3,000 | Social Security benefit | $5,500 |
| Social Security Benefit | $11,000 | Provisional Income | $44,000 |
Because your provisional income exceeds the married couple limit of $44,000 the Johnson's will pay tax on more than 50% of their Social Security benefits.
Assuming they don't live off of their investments, they would be better off rolling that money into an annuity. Here's why:
| Assets: | Provisional Income: | ||
| Pension Income | $24,000 | Pension Income | $24,000 |
| Annuity Income | $0 | Taxable Income | 0 |
| Social Security benefit | $5,500 | ||
| Social Security Benefit | $11,000 | Provisional Income | $29,500 |
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