Disclaimer
This page is meant to provide general guidance, and should not be used as the basis for tax advice. Taxpayers should always seek guidance from competent tax professionals.
Taxable Social Security Benefits
Taxable Social Security benefits are determined by the additional substantial income received. Substantial income includes income wages, self-employment, interest, dividends and other taxable income that must be reported on the tax return. Under Internal Revenue Service (IRS) rules, the maximum amount of Social Security benefits that can be federal income taxed is 85 percent.
Income tax on Social Security benefits can be estimated to pay quarterly, in an annual lump sum, or have a percentage withheld from each benefit check. Social Security disability benefits and retirement benefits are treated the same for income tax purposes. SSI benefits are not subject to income tax.
Taxable Social Security Benefits
Provisional income helps determine the amount of taxable income you report on your Form 1040. To calculate your provisional income:
- Find your adjusted gross income (AGI) on the last line of Page 1 of your Form 1040. Do not include Social Security benefits when figuring your AGI.
- Add 50% of your Social Security benefits to your AGI.
- If applicable, add tax-free municipal bond interest income (line 8b of Form 1040) to your AGI.
- If applicable, add tax-free interest on U.S. Savings Bonds used to pay for qualified college expense (IRS Form 8815) to your AGI.
- If applicable, add tax-free adoption assistance payments from your employer (IRS Form 8839) to your AGI.
- If applicable, add Page 1 deduction for student-loan interest to your AGI.
- If applicable, add Page 1 deduction for domestic production activities (IRS Form 8903) to your AGI.
- If applicable, add tax-free foreign earned income and housing allowances and certain tax-free income from Puerto Rico or U.S. Possessions (IRS Forms 255 and 4563) to your AGI.
The final number is your provisional income for the year.
Possible Tax Liability
Now that you know your provisional income, you can determine which of the following tax scenarios you fall under.
Not Married and Not Filing Form 1040 Jointly
| Provisional Income | Possible Tax Liability |
|---|---|
| Less than $25,000 | Totally federal income tax free (may owe state income tax) |
| Between $25,001 and $34,000 | Must report up to 50% of your Social Security benefits as your income on Form 1040 |
| Above $34,000 | Must report up to 85% of your Social Security benefits as income on your Form 1040. |
Married and Filing Form 1040 Jointly With Spouse
| Provisional Income | Possible Tax Liability |
|---|---|
| Less than $32,000 | Totally federal income tax free (may owe state income tax) |
| Between $32,001 and $44,000 | Must report up to 50% of your Social Security benefits as income on your Form 1040. |
| Above $44,000 | Must report up to 85% of your Social Security benefits as income on your Form 1040. |
Married and Not Filing Form 1040 Jointly
| Provisional Income | Possible Tax Liability |
|---|---|
| Greater than $0 | If filing separately forms your spouse who lived with you at any time during the year, you must report up to 85% of your Social Security benefits as income on Form 1040. |
Other Matters
Attorney Fee: If a taxpayer discovers that some of his or her Social Security lump sum turns out to be taxable, attorney fees may be deducted from that income. The amount deductible is only deductible to the same extent that Social Security is taxed. For example, if a taxpayer reported 50% of Social Security benefits to be taxed, then only 50% of the attorney fees paid or incurred during the same year may be deducted.
Worker’s Compensation: Social Security disability may be reduced for worker’s compensation and other public disability benefits. Amounts deducted from Social Security disability are still included as benefits received for purposes of income tax. State worker’s compensation is considered taxable in an amount equal to the Social Security reduction.
Auxiliary (child or spouse) benefits – Benefits are included in the taxable income of the person who has the legal right to receive them.
Long-term Disability (LTD) – There is a special tax relief for taxpayer who uses all or part of a Social Security back payment to reimburse a long-term disability carrier. If repayment to the LTD carrier is under $3,000, the taxpayer gets a deduction on the current year’s tax return. If repayment to the LTD carrier is above $3,000, the taxpayer chooses either the deduction or a tax credit for the excess tax paid in the prior year.
Self-Employed – Self-employed income receive a Social Security tax deduction and an income tax deduction at tax time. For the Social Security tax deduction, the self-employed deduct 7.65% of net earnings and then tax at 15.3%. For the income tax deduction, 50% of the net social security tax liability is deducted from gross earnings as a business expense.
Social Security Disability Case Review
If you’ve been disabled and cannot work, you may be entitled to benefits under OASDI. A social security disability attorney may be able to assist you with sorting out the benefits you should apply for and with coordinating those benefits with other benefits you may be receiving, including workers’ compensation benefits. You don’t have to go it alone. Contact us today. We’ll immediately route your information to our social security disability case team and get back to you within one business day. There is never an obligation to hire our law firm.
