Your Social Security could be taxable

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Q. If Social Security is your only income, is it taxable? How is it different if you work?
— Planning

A. It’s a great question.

If your Social Security benefit is absolutely your only income, and you have no other earned or unearned income, then your benefit is not taxable, said Cynthia Aiken, a certified financial planner with RegentAtlantic in Morristown.

“Earned income is your employment income,” she said. “Unearned income is interest, dividends, capital gains, alimony, pension income or any other income which you do not receive from an employer.”

However, if you have any earned or unearned income in addition to your Social Security benefits, then the tax status of your Social Security benefits depends on your Combined Income, Aiken said.

Combined Income is your adjusted gross income (AGI) plus nontaxable interest plus half your Social Security benefits.

A side note: Nontaxable interest includes interest from municipal bonds and tax-exempt bond mutual funds.

“If your Combined Income is less than $25,000 for those filing single or $32,000 or for married filing jointly, then your Social Security benefits are not taxable,” Aiken said. “However, if your Combined Income is more than $34,000 for single filers or $44,000 for married joint filers, then up to 85 percent of your Social Security benefits are taxable.”

If you work, your earned income from your job will be included in your Combined Income as part of your adjusted gross income (AGI), so the same thresholds apply, she said.

Keep in mind that if you have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments or have taxes withheld from your Social Security checks to avoid penalties or a tax bill on April 15.

Email your questions to moc.p1519155274leHye1519155274noMJN1519155274@ksA1519155274.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.