Will Your Social Security Benefits be Taxed?

50% of all Americans have some or most of their social security taxed. Taxed by the feds, the IRS. There's also some states that tax your social security and what you want to know is how do they calculate that and what can I do to lower my taxable income. So we'll talk about that. If you are married and you make less than $32,000 you're not going to have to pay any taxes. Now social security administration will send you a 1099 every year. You're like a lot of people when they first get the social security. Why are they sending me this? That is your first indication that your social security might be taxed and if you do have to pay taxes on it there you go. There's how much you made a year. So if you're a married couple filing jointly less than $32,000 no problem. If you make up to $44,000 jointly then we're into the taxes. 50% of your social security will be subject to tax at your tax bracket. So people hear this and they think I'm being taxed at the 50% tax bracket. No that doesn't exist. You're being taxed at your tax bracket. Hopefully you're at a lower tax bracket. But we have to back up here because it's not as simple as did we make $44,000. They don't go by your adjusted gross income. They go by something called your combined income because the government just they knock themselves out to make this as complex as possible. What is combined income? That is your adjusted gross income which you're familiar with. Then they add back in half your social security. This is all just to determine if your social security is taxable. This is just their wacky formula. Add back in half your social security. Then they add back in some non-taxable assets which completely blows your mind. This is like black magic how they came up with that. So for example if you have municipal bonds. Municipal bonds are tax-free. So you have growth that you're not taxed on but they're using that they're using that amount to figure out if they're going to tax you on your social security. You're not being taxed on your non-taxable assets like growth and a Roth IRA. You're not being taxed on it but they're using that. It's just it's unfortunate. So you're having your adjusted gross income. Half your social security. Adding back in some of your taxable income. That creates your combined income and that's what these charts are based on. What is your combined income? And a lot of you it's going to be simple. It's just your adjusted gross income because you don't have any of these other tax-free events that they're they're adding back in. So look at your modified adjusted gross income and half your social security and then see if these charts pertain to you. So for a married couple making over $44,000, 85% of your social security will be taxed. Again not at an 85% tax bracket. Tax is a bracket. Tax rate at your tax bracket. Okay if you're an individual or married filing separately then we're looking at your social security your combined income. Yes this is the same rule if you're on social security disability. Now VA disability is tax-free so you don't have to bring in your VA disability but if you're on federal social security disability these are the same income thresholds. Because think about it you might be in disability you don't make very much but you're married and together putting it together pushes you over $44,000 and now 85% of your disability is going to be taxed on your federal income taxes. I know it's terrible. So let's look at an individual if you make less than $25,000 you do not have to file federal income taxes. If you make $25 and $1 extra now 50% of your social security or disability will become taxed. So the same thing how about you have a child getting a child survivor benefit. Will they have to pay taxes? Maybe. If they also have another side job or some teenagers have several side jobs and they're pushing themselves over this $25,000 and $1 of combined income yeah their child survivor benefits could become taxed. If you are a parent and so say my husband died and my three kids are all I don't have to pay taxes on their benefit that's all on them and typically they're going to be less than $25,000 there's no taxes. So that puts a lot of widows at ease that I don't have to include theirs. Okay so if I make more than $34,000 as an individual which means I'm not making that on my social security typically that means I have other investment income and I have a pension. So if you have a military pension that will drive up your taxable income but not military disability. So I'm over $34,000 85% of my social security will be taxed and these rates that you see right here they came up with this in the 80s. They came up with this in the 80s. Go back up to Mary. This has never changed. This is not indexed for inflation. So to show you how tricky they are if they would have indexed this for inflation right that that's fair that's how they do most things but they didn't do it on purpose so that as the with inflation more and more