One of the more confusing items on a tax return is how Social Security benefits are taxed.
Social Security benefits include monthly retirement, survivor and disability benefits. They do not include Supplemental Security Income payments, which are not taxable.
Equivalent tier 1 railroad retirement benefits are the part of tier 1 benefits a railroad employee or beneficiary would have been entitled to receive under the Social Security system.
They are commonly called the Social Security equivalent benefit portion of tier 1 benefits.
Social Security benefits by themselves are not taxable. However, once added to other income on the tax return, the Social Security benefit can be taxable.
The Internal Revenue Service uses a base income, which for single, head of household, and qualifying widow filers, is $25,000.
If you are married filing separately and lived apart from your spouse all year, it is $25,000.
However, if you are married filing separately and lived with your spouse at any time during the year, the base amount is $0.
If you are married filing jointly, the base amount is $32,000.
To determine your income, take half of all Social Security benefits, plus all other wages and income. If the total of these amounts is less than or equal to the base amount, none of your Social Security benefits will be taxed.
However, if the amount is more than the base amount, some of the Social Security benefits will be taxed.
How much is taxable depends on the total amount of your benefits and other income. The higher the total income, the greater the taxable part of the benefit. The taxable amount of the Social Security benefits is generally up to 50 percent.
However, if the filing status is married filing separately and you lived with your spouse at any time during the year, or if half of the Social Security and all other income is more than $34,000 ($44,000 if married filing jointly), then 85 percent of the Social Security benefits will be taxed.
Most do not have taxes taken out of their Social Security, and when calculated with the other income, the unexpected taxation of the benefits can result in owing taxes.
For more information, visit www.irs.gov and type Social Security in the search engine.
Tracy Bunner is an enrolled agent and tax preparer with an office in Harrisville. She can be reached at 801-686-1995 or at firstname.lastname@example.org.