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The Professor Nedley Series

Taxation of Social Security Income

A Brief Summary of the Taxation of Social Security

April 15, 2007

    A portion of Social Security income is taxable (as much sense as it makes to tax income that is basically tax funds collected from the taxpayer years ago and held to earn income or in reality to support war efforts).  In other words the US of A is taxing the taxes that it already collected and is now paying out.  Yes, it would be simpler to collect less money and then pay out less money and eliminate the tax collector.  It would even make more sense to collect less money and fight fewer wars.  Oh Well!

        All of the income is reportable for child support or spousal support purposes, but is taxed differently than earned income, therefore the various calculating programs have a special category for inclusion of the net Social Security income.

        For tax purposes the taxpayer must include as taxable income the lesser of either:

            1.  One-half of the benefits received, OR

            2.  One-half of the excess of "provisional income" over a "base amount",

                                                    UNLESS

            3.  Provisional income exceeds $44,000 ($34,000 if single) then the IRS can tax up to 85% of your Social Security income.

Provisional Income: is the taxpayer's Adjusted Gross Income (AGI) from normal sources PLUS one-half actual social security PLUS any tax-exempt interest. So basically if you have other income sources you'll end up paying taxes on 85% of your SS income.

Base Amount:  is $32,000 for joint filers and $25,000 for single filers and Head of Householders.

If the taxpayers income is above the $34,000/$44,000 Provisional Income amounts then change the amount includible in taxable income from 50% to 85% in the above calculation.

NOTE:  When you run across the abbreviation SSI in court pleadings or client documents it stands for Social Security Insurance and is covered under a totally different concept.  It is insurance and it's NOT taxable.

Tip #1:  If they were married more than 10 years, a non-working spouse or a low-income spouse has the right to apply for his or her own social security at age 62 and receive an amount equal to 50% of the wage earners entitlement.  Make 'em apply.

Tip #2:  If there's no other income, then for quick entry purposes enter 50% as taxable income and 50% as non-taxable for calculation purposes.

Tip #3: If their other income exceeds $34,000 then enter their SS income as 85% taxable and 15% non-taxable.  Best Bet is to find Social Security income on the calculator and enter it there.

Don't forget if you on the bench or in private practice and you've turned 65 and a few months, social security is a nice way of giving yourself a pay raise that is not totally taxed.  You get a 15% discount on paying your taxes. Hooray!