Business & Finance

Guest Column

TIMELY TAX TIPS: When Is Social Security Income Taxable?

c724d75f017dc17d7579_ed_and_Me.jpg
Credits: WFP
fe3c31e362585648f0e3_Screenshot_2017-02-08_19.43.09.jpg
Let us help you prepare your Tax Return from last year and help you plan for the next Tax year. Credits: wfp
c724d75f017dc17d7579_ed_and_Me.jpg

BASKING RIDGE, NJ- The number 1 question for our tax clients about to retire is "When Is Social Security Income Taxable?"  The answer depends on your income.

Your Social Security income could be taxed. That may seem unfair, or unfathomable. Regardless of how you feel about it, it is a possibility.

Seniors have had to contend with this possibility since 1984. Social Security benefits became taxable above certain yearly income thresholds in that year. Frustratingly for retirees, these income thresholds have been left at the same levels for 32 years.1

Sign Up for E-News

Those frozen income limits have exposed many more people to the tax over time. In 1984, just 8% of Social Security recipients had total incomes high enough to trigger the tax. In contrast, the Social Security Administration estimates that 52% of households receiving benefits in 2015 had to claim some of those benefits as taxable income.1

Only part of your Social Security income may be taxable, not all of it. Two factors come into play here: your filing status and your combined income.

Social Security defines your combined income as the sum of your adjusted gross income, any non-taxable interest earned, and 50% of your Social Security benefit income. (Your combined income is actually a form of modified adjusted gross income, or MAGI.)2

Single filers with a combined income from $25,000-$34,000 and joint filers with combined incomes from $32,000-$44,000 may have up to 50% of their Social Security benefits taxed.2

Single filers whose combined income tops $34,000 and joint filers with combined incomes above $44,000 may see up to 85% of their Social Security benefits taxed.2

What if you are married and file separately? No income threshold applies. Your benefits will likely be taxed no matter how much you earn or how much Social Security you receive.2

You may be able to estimate these taxes in advance. You can use an online calculator (a Google search will lead you to a few such tools), or the worksheet in IRS Publication 915.2  

You can even have these taxes withheld from your Social Security income. You can choose either 7%, 10%, 15%, or 25% withholding per payment. Another alternative is to make estimated tax payments per quarter, like a business owner does.2

Did you know that 13 states also tax Social Security payments? North Dakota, Minnesota, West Virginia, and Vermont use the exact same formula as the federal government to calculate the degree to which your Social Security benefits may be taxable. Nine other states use more lenient formulas: Colorado, Connecticut, Kansas, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, and Utah.2

What can you do if it appears your benefits will be taxed? You could explore a few options to try and lessen or avoid the tax hit, but keep in mind that if your combined income is far greater than the $34,000 single filer and $44,000 joint filer thresholds, your chances of averting tax on Social Security income are slim. If your combined income is reasonably near the respective upper threshold, though, some moves might help.

If you have a number of income-generating investments, you could opt to try and revise your portfolio, so that less income and tax-exempt interest are produced annually.

A charitable IRA gift may be a good idea. You can make one if you are 70½ or older in the year of the donation. You can endow a qualified charity with as much as $100,000 in a single year this way. The amount of the gift may be used to fully or partly satisfy your Required Minimum Distribution (RMD), and the amount will not be counted in your adjusted gross income.3

You could withdraw more retirement income from Roth accounts. Distributions from Roth IRAs and Roth workplace retirement plan accounts are tax-exempt as long as you are age 59½ or older and have held the account for at least five tax years.4

Will the income limits linked to taxation of Social Security benefits ever be raised? Retirees can only hope so, but with more baby boomers becoming eligible for Social Security, the IRS and the Treasury stand to receive greater tax revenue with the current limits in place.

For professional assistance, contact Walter Pardo, WFP Tax Partners at the Basking Ridge, NJ office at (877) 714-2362 email: walter@walterpardo.com or to click below to schedule a time to discuss your needs. 

Citations.

1 - ssa.gov/policy/docs/issuepapers/ip2015-02.html [12/15]

2 - fool.com/retirement/general/2016/04/30/is-social-security-taxable.aspx [4/30/16]

3 - kiplinger.com/article/retirement/T051-C001-S003-how-to-limit-taxes-on-social-security-benefits.html [7/16]

4 - irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts [1/26/16]

 

The opinions expressed herein are the writer's alone, and do not reflect the opinions of TAPinto.net or anyone who works for TAPinto.net. TAPinto.net is not responsible for the accuracy of any of the information supplied by the writer. Click here to submit a Guest Column.

TAP Into Another Town's News:

Sign Up for E-News

Berkeley Heights

Sleep out at Covenant House

June 18, 2018

I can enjoy the same movies over and over like it were the first time to see them.  My kids roll their eyes at this.  Well, many unimaginable things happen as you become a certain age, and you tend to learn to accept those things graciously as gift.   But I remember the movie “The Blind Side.”  Until I saw that movie, I didn’t know homeless children ...

The Grove at Connell Park Hosts a Home for Good Dog Rescue Adoption Event: Wednesday, June 27

June 21, 2018

BERKELEY HEIGHTS, NJ - Home for Good Dog Rescue presents an adoption event from 11:30 a.m. to 3:30 p.m. on Wednesday, June 27 at The Grove at Connell Park located on Connell Drive in Berkeley Heights. (Rain Date June 28)

Click here to apply to adopt: bit.ly/hfgadopt

About Home for Good Dog Rescue: Home for Good Dog Rescue (HFGDR) is a 100 percent foster-based, non-profit ...

Moms Helping Moms Foundation Receives Overwhelming Support from Community to Help Mothers this Mother’s Day

Mother’s Day is often celebrated by showering the women in our lives with beautiful flowers, heartfelt cards, and taking them on special outings to show them how much they mean to us. Yet, for many low-income mothers living in our community, they struggle each day to provide the basics for their babies.

Diapers are a necessity yet one in three families in the United States lack an ...

New Providence Recreation Offers Adult Summer Programs

New Providence Recreation is accepting registrations for adult evening and daytime programs that run June 25th – August 31st.  Most of the eight to nine-week sessions are under $65; several programs are free for NP residents!  All levels of fitness and those returning to exercise are welcome.

Programs are offered starting at 6 a.m.. If you are seeking weight loss, core body ...

Summit Community Blood Drive is Sunday; First 50 donors Will Get a Free Union Theater Movie Pass

The weather may have just started to warm up, but New Jersey Blood Services (NJBS) is already urging the public to donate blood as we head into the summer months.  With schools closing and vacations scheduled, less people donate blood from June through August but transfusions are still needed for local patients.   

“We’re especially thankful to our dedicated donors ...

Missing in North Plainfield: Have You Seen Angel?

June 21, 2018

NORTH PLAINFIELD, NJ - Have you seen Angel?

Angel is a seven year old black and white Husky last seen near Westervelt Ave. and Manning Ave. on June 16. Her family says she is very friendly. 

If found, call Andrea at  888-466-3242.

 

Scotch Plains Mayor Al Smith Attends Gun Safety Bills Signing Ceremony with Gov. Murphy in Trenton

June 14, 2018

TRENTON, NJ -- Mayor Al Smith attended a gun safety package bill signing ceremony at the Richard J. Hughes Justice Complex in Trenton on Wednesday with Governor Phil Murphy. Mayor Smith joined a bipartisan group of local and state elected officials, as well as members of Moms Demand Action of Union County, at the event. 

“As a leader in Sandy Hook Promise, I was happy to accept the ...

What's Hot and What's Not

Summer is a great time to take a step back, sip a cool beverage, and take a look at what’s going on in the world of college admissions.  Departments use the summer to evaluate how their year went and plan on any changes they want to make for the fall.  Did they over-enroll? Under-enroll?  What application materials were useful to them?  Which were redundant or time ...

Cool Ways to Save Money This Summer

As the summer temperatures rise, home cooling costs rise as well. But there are ways to help save money without sweating the heat:

To increase your cooling system’s efficiency by as much as 20%, get it checked out for summer.  A technician will clean the condenser, make sure you have the optimal amount of refrigerant, and ensure the airflow over the coil is ...