07 Apr How much of my Social Security benefits will be taxed?
Q. I have been collecting Social Security since turning 66 four years ago. This past year in 2021, I collected $30,671.40. I also have a pension from that was $23,216.04. I am still working as well as a consultant and made just over $107,000. I also had to take out $14,000 from one of my IRAs and I paid $2,800 in federal taxes. With that said, how much of my Social Security will be taxed?
— Still working
A. For starters, Social Security benefits are not subject to New Jersey income tax.
But it is different for federal tax purposes.
If your total gross income including otherwise tax-exempt municipal bond interest exceeds $25,000, you begin to pay federal tax on your Social Security benefits on a sliding scale that eventually reaches a maximum of 85%, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.
A formula is used where one calculates their “provisional income” which is defined as the sum of 50% of Social Security benefits, plus tax-exempt interest, plus other items included in your adjusted gross income, he said.
For single taxpayers, Social Security benefits escape federal taxation if provisional income is less than $25,000. For provisional income between $25,000 and $34,000, up to 50% of Social Security benefits are taxable. If provisional income exceeds $34,000, up to 85% of benefits will be taxable, Becourtney said.
In your situation, your provisional income is at a level that the maximum 85% of your Social Security benefits, amounting to $26,070, will be subject to federal income tax for 2021, he said.
IRS Publication 915 explains the calculation in detail and includes several examples, and there’s also a worksheet from the publication for calculating taxable benefits in the Form 1040 instructions.
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This story was originally published on April 7, 2022.
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