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Old 01-14-2015, 03:38 AM
 
Location: Grove City, Ohio
10,135 posts, read 12,392,750 times
Reputation: 13984

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In other threads I've made statements like

Quote:
.our combined social security will exceed $4,300 tax free dollars every month...
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.
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.
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.
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Old 01-14-2015, 04:53 AM
 
Location: Los Angeles area
14,018 posts, read 17,747,361 times
Reputation: 32309
Quote:
Originally Posted by nicet4 View Post

For most of us paying federal income tax on our social security benefits will never happen.
I don't know about "most" people, but it depends on the ratio of income from SS benefits to other income. So in that sense, the lower the SS amount, the more likely it is that it will be taxed, provided there is other income. My yearly amount of SS for 2014 was $1916. Yes, that's yearly and it's not a typo. 85% of it is taxed, and no, I do not have unusually high retirement income.

I am confused about your calculations, which appear to show no other income besides SS. Yet you speak about a state pension, which is other income. If the state pension is large enough, it could trigger taxation of the SS benefits. Also, if your SS is subject to the WEP, then how can your SS amounts be as large as you state in your quote of yourself from "other posts"?

I admit that the problem may be with my own confusion about what you have written, not with your conclusion. But perhaps you could clarify for me how the state pension amount appears, or doesn't appear, in your calculations.
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Old 01-14-2015, 09:35 AM
 
Location: OH>IL>CO>CT
5,238 posts, read 8,413,404 times
Reputation: 7191
ISTM you are correct, having paid this tax on my SS benefits the last 4 years due to IRA withdrawals. A few hundred dollars extra each year.

There is also an IRS worksheet at http://www.irs.gov/pub/irs-pdf/n703.pdf.

Who said SS benefits are not "means-tested" ?
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Old 01-14-2015, 10:28 AM
 
29,782 posts, read 34,880,403 times
Reputation: 11705
Quote:
Originally Posted by Escort Rider View Post
I don't know about "most" people, but it depends on the ratio of income from SS benefits to other income. So in that sense, the lower the SS amount, the more likely it is that it will be taxed, provided there is other income. My yearly amount of SS for 2014 was $1916. Yes, that's yearly and it's not a typo. 85% of it is taxed, and no, I do not have unusually high retirement income.

I am confused about your calculations, which appear to show no other income besides SS. Yet you speak about a state pension, which is other income. If the state pension is large enough, it could trigger taxation of the SS benefits. Also, if your SS is subject to the WEP, then how can your SS amounts be as large as you state in your quote of yourself from "other posts"?

I admit that the problem may be with my own confusion about what you have written, not with your conclusion. But perhaps you could clarify for me how the state pension amount appears, or doesn't appear, in your calculations.
Great points and I wonder how many with maximum SS income don't have a pension and or decent investment income. A couple with dual Max SS income was pulling over 200k working income a year retiring in the last decade or so. It is all relative to average salaries and family in any given geographic area and what the forum participant is use to. We have had multiple forum income polls showing a considerable number of participants with higher incomes than discussions would suggest.
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Old 01-14-2015, 12:33 PM
 
Location: Grove City, Ohio
10,135 posts, read 12,392,750 times
Reputation: 13984
it's all a relative thing. Both of us living in in Palo Alto on $40k would starve to death even with the house paid for.

In south Georgia two can live well on $40k.
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Old 01-14-2015, 01:18 PM
 
29,782 posts, read 34,880,403 times
Reputation: 11705
Quote:
Originally Posted by nicet4 View Post
it's all a relative thing. Both of us living in in Palo Alto on $40k would starve to death even with the house paid for.

In south Georgia two can live well on $40k.
Very true, MathJak and I have had discussion about the impact of different sources on income on taxation. Pensions are great but they don't have a lot of tax flexibility when compared with drawing down multiple sources of investment income.
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Old 01-14-2015, 07:35 PM
 
Location: Grovetown, Ga
22 posts, read 15,662 times
Reputation: 113
Easy to use calculator makes projections easier. I ran several what if's and was somewhat surprised at the results.

How much of my social security benefit may be taxed? | Calculators by CalcXML
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Old 01-14-2015, 09:04 PM
 
Location: Wisconsin
21,541 posts, read 44,039,638 times
Reputation: 15150
My threshold on whether or not SS is taxed at any level is an 'other' income - (RMDs, pension, whatever) - in excess of $14,000/year. Then $9,000 between $25/$34k is 50% taxable. Should my 'other income' exceed $23k, then I get into 85% territory.

It doesn't take a lot to have one's SS taxable. I don't have a pension to speak of. But, if I had the average pension of $18k, I'd always be paying a tax on SS benefits. Then, add in RMD's.

I don't see how anyone retiring with high levels of SS income and decent pension income avoids taxability of SS, frankly. Even if all retirement savings are in Roths. The pensions throw you over the cliff. The only mitigating factor, in that case, might be a high level of itemized deductions.
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Old 01-14-2015, 09:09 PM
 
6,267 posts, read 4,740,348 times
Reputation: 12871
Quote:
Originally Posted by nicet4 View Post
..

....... Like I said, cry me a river. .....

Whoa there!!! Over my working lifetime I have paid enough taxes to blow up a bunch of terrorist camps and villages. I have paid piles of social security and Medicare deductions. Now that I am no longer working and am collecting my meager benefits you think they should be taxed??? I am trying to retire on Long Island where I spent most of my working career and have family. Maybe in Georgia you feel more taxes would not be a burden. That is not true here. If you want to pay more taxes, I would be happy to let you pay my $13,000/year property taxes.
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Old 01-15-2015, 12:18 AM
 
Location: Grove City, Ohio
10,135 posts, read 12,392,750 times
Reputation: 13984
Quote:
Originally Posted by jrkliny View Post
Whoa there!!! Over my working lifetime I have paid enough taxes to blow up a bunch of terrorist camps and villages. I have paid piles of social security and Medicare deductions. Now that I am no longer working and am collecting my meager benefits you think they should be taxed??? I am trying to retire on Long Island where I spent most of my working career and have family. Maybe in Georgia you feel more taxes would not be a burden. That is not true here. If you want to pay more taxes, I would be happy to let you pay my $13,000/year property taxes.
Whoa my friend, you totally misunderstood the point I was making or where I was coming from with it!

Like you I have paid in a lot over my lifetime and in fact did a detailed analysis a couple years ago and determined that if the amount sent in on my behalf had been deposited into the most basic bank passbook savings account paying the average passbook interest rate of the time my social security account would today have a worth exceeding $750k.

That from the simplest savings method and if my money had been put into a Vanguard account it would be worth several million.

I believe all social secutity should be exempt from all federal and state taxes regardless of other income.

Excuse the punctuation,or lack of, knowing I sent this using my phone.
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