Social Security Benefits and Income Tax
Did you know that a portion of your Social Security benefits may be subject to income tax? This occurs when your modified adjusted gross income (MAGI), plus 1/2 of your benefits, exceeds specified limits. The Social Security Administration refers to this as your combined income.
How do I calculate my MAGI?
In short, your MAGI is your adjusted gross income combined with your tax-exempt interest income and income earned outside of the U.S. that is exempt from tax.
Adjusted Gross Income (AGI):
Your AGI includes your wages, interest, dividends, taxable pensions, and any other sources of income. If you are married and filing jointly, you would need to include the AGI for both yourself and your spouse.
Tax-Exempt Interest Income:
An example of this would be interest from municipal bonds and qualified U.S. savings bonds.
Income earned outside of the U.S. that is exempt from tax:
This includes amounts earned in a foreign country, U.S. possession, or Puerto Rico that are exempt from tax.
How much of my social security benefits could be taxed?
If your “combined income” is within the following ranges, up to 50% of your benefits may be taxable.
- Filing as Single: $25,000 – $34,000
- Married filing jointly: $32,000 – $44,000
- Filing as Head of household: $25,000 – $34,000
- Filing as Qualifying widow(er) with dependent child: $25,000 – $34,000
- Married filing separately: see below
If your “combined income” exceeds $34,000 ($44,000 if married filing jointly), up to 85% of your benefits may be taxable.
Up to 85% of your benefits may be taxed if you are married and filing separately. This is unless you and your spouse have lived apart for the entire year (then the single filer thresholds apply).
In Conclusion
If you believe that this may apply to your Social Security benefits, we recommend reaching out to your Tax Advisor. You can also review the IRS’ Tax Guide for Seniors, IRS Publication 554, which can be found here: https://www.irs.gov/forms-pubs/about-publication-554. This guide provides up-to-date and detailed information related to tax preparation for seniors.
Author: Marc Verdi, CPA/PFS, CFP® | Director of Tax & Financial Planning
Written: August 25, 2023