In other threads I've made statements like
Quote:
.our combined social security will exceed $4,300 tax free dollars every month...
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whereupon I am corrected that social security benefits are (may be is the correct term) subject to federal income taxes.
Yes, some of it may be but my research shows that only happens to people with unusually high retirement incomes.
For most of us paying federal income tax on our social security benefits will never happen.
IRS Publication 915 Social Security and Equivalent Railroad Retirement Benefits
From Publication 915 it appears to me the online income tax calculator does a fair job of telling you what your tax might be.
How much of my social security benefit may be taxed?
Quote:
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.
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From social security:
What is the maximum Social Security retirement benefit payable?
Quote:
The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2014, your maximum benefit would be $2,642. However, if you retire at age 62 in 2014, your maximum benefit would be $1,992. If you retire at age 70 in 2014, your maximum benefit would be $3,425.
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The maximum amount a single person would receive would be $41,100 I show no federal income tax on the social security.
Social Security Taxation - IRS Publication 915
1
Total Social Security benefit $41,100
2 One-half of line #1 $20,550
3 Adjusted Gross Income items (without 'adjustments') $0
4 Add back tax-free interest $0
5 Add lines 2,3 and 4 $20,550
6 Adjustments (deductible IRA contributions) $0
7 Subtract line 6 from line 5 $20,550
8 MAGI base amount $25,000
9 Subtract base amount (line 8 from line 7) $0
10 Enter factor based on filing status $9,000
11 Subtract 10 from 9 (min = 0) $0
12 Enter the smaller of line 9 or line 10 $0
13 Enter one-half of line 12 $0
14 Enter the smaller of line 2 and line 13 $0
15 Multiply line 11 by 85% (min = 0) $0
16 Add lines 14 and 15 $0
17 Multiply line 1 by 85% $34,935
18 Enter the smaller of line 16 or 17 $0
Taxable Social Security benefit $0
Percent of Social Security benefit subject to taxation 0%
Estimated taxes due $0
And that is the maximum amount if a person waits to age 70 to collect.
Let's double it for a married couple where both were high earners, both received the maximum amount and both waited to age 70 to collect.
Social Security Taxation - IRS Publication 915
1
Total Social Security benefit $82,200
2 One-half of line #1 $41,100
3 Adjusted Gross Income items (without 'adjustments') $0
4 Add back tax-free interest $0
5 Add lines 2,3 and 4 $41,100
6 Adjustments (deductible IRA contributions) $0
7 Subtract line 6 from line 5 $41,100
8 MAGI base amount $32,000
9 Subtract base amount (line 8 from line 7) $9,100
10 Enter factor based on filing status $12,000
11 Subtract 10 from 9 (min = 0) $0
12 Enter the smaller of line 9 or line 10 $9,100
13 Enter one-half of line 12 $4,550
14 Enter the smaller of line 2 and line 13 $4,550
15 Multiply line 11 by 85% (min = 0) $0
16 Add lines 14 and 15 $4,550
17 Multiply line 1 by 85% $69,870
18 Enter the smaller of line 16 or 17 $4,550
Taxable Social Security benefit $4,550
Percent of Social Security benefit subject to taxation 6%
Estimated taxes due $1,138
Ok, out of $82,200 they will have to pay $1,138 in federal income tax on social security IF social security was all they received.
$94.83 monthly.... a real killer on an $82,200 income. Cry me a river!
A married couple filing jointly with $52,000 in combined social security benefits the federal taxes are a big fat zero and her in Georgia it's a big fat zero on Georgia income tax as well.
In my mind one of the biggest benefits in waiting to collect is the money (for most of us) is tax free.
Even when forced to take money from an IRA @ $12,000/year the impact is very little for a married couple filing jointly.
Combined social security benefit
Social Security Taxation - IRS Publication 915
1 Total Social Security benefit $52,000
2 One-half of line #1 $26,000
3 Adjusted Gross Income items (without 'adjustments') $12,000
4 Add back tax-free interest $0
5 Add lines 2,3 and 4 $38,000
6 Adjustments (deductible IRA contributions) $0
7 Subtract line 6 from line 5 $38,000
8 MAGI base amount $32,000
9 Subtract base amount (line 8 from line 7) $6,000
10 Enter factor based on filing status $12,000
11 Subtract 10 from 9 (min = 0) $0
12 Enter the smaller of line 9 or line 10 $6,000
13 Enter one-half of line 12 $3,000
14 Enter the smaller of line 2 and line 13 $3,000
15 Multiply line 11 by 85% (min = 0) $0
16 Add lines 14 and 15 $3,000
17 Multiply line 1 by 85% $44,200
18 Enter the smaller of line 16 or 17 $3,000
Taxable Social Security benefit $3,000
Percent of Social Security benefit subject to taxation 6%
Estimated taxes due $750
Once again, cry me a river.
In this example a total income of $64,000 and of that only $3,000 of the social security is taxed resulting in a total federal income tax bill of $750 or $62.50/month. Like I said, cry me a river. Oh, and in Georgia that $64,000 retirement income continues to be exempt from state income taxes.
The way I see it I have to put off collecting until I am 70, I got no other choice. Like many my highest earning years weren't over the past 10 years but in the 1980's, 90's and the beginning of this century. I earned a lot more and paid a lot more in social security taxes than I have lately even hitting the maximum amount a number of times.
If these calculations are correct (I pray that they are) if I can put off collecting for another three short, easy years our income from social security and state pension (got hit by WEP on that one but they can't take it all) will be 94% of our current weekly take home pay.