Are my Social Security benefits taxable?


Q. I have been collecting a divorced spousal benefit from Social Security since my Full Retirement Age (FRA). I am still employed full-time and I have unearned income from rental property and investments. Is my Social Security benefit taxable in New Jersey?
— Unsure

A. We can start out with some good news for you.

Social Security benefits are exempt from income tax in New Jersey.

In fact, the benefits aren’t even reported anywhere on the state return.

But the federal rules for Social Security taxability are quite different. Let’s review the rules.

Under federal rules, a portion of your Social Security benefits may be taxable up to a maximum of 85 percent, said Cynthia Fusillo, a certified public accountant with Lassus Wherley in New Providence.

She said determining just how much is taxable requires calculating a base amount as well as a taxpayer’s provisional income.

“Once a taxpayer’s provisional income exceeds the stated base amount for his/her filing status, then a portion of Social Security benefits will be taxable,” she said.

Fusillo said provisional income is modified adjusted gross income (MAGI) plus one half of Social Security benefits received. MAGI is adjusted gross income plus tax-exempt interest received.

“Base amounts are currently $44,000 for taxpayers filing jointly, $0 if filing separately and not living apart and $34,000 for all other taxpayers,” she said.

The instructions to Form 1040 include a worksheet to determine how much of your Social Security benefits you should include in income based on the excess of provisional income over your base amount, she said.

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