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New Social Security beneficiaries should know benefits may be taxable

Posted on June 7, 2021

Frequently, those new to receiving Social Security benefits are surprised to find out they may pay federal income tax on a portion of their benefits. However, which portion is taxable depends on the taxpayer’s income and filing status.

Social Security benefits include monthly retirement, survivor, and disability benefits. They don’t include supplemental security income payments, which aren’t taxable.

How will you know if you owe?

Mike Poynter, CPA with Teipen CPA Group, suggests determining this in advance of tax season to avoid an unwanted financial surprise. To find out, taxpayers should take half of the Social Security money they collected during the year and add it to their other income (including pensions, wages, interest, dividends, and capital gains).

  • If the taxpayer is single and that total comes to more than $25,000, then part of their Social Security benefits may be taxable.
  • If they are married filing jointly, they should take half of their Social Security, plus half of their spouse’s Social Security, and add that to all their combined income. If that total is more than $32,000, then part of their Social Security may be taxable.

Here’s the IRS breakdown:

50% of a taxpayer’s benefits may be taxable if they are –

  • Filing single, single, head of household or qualifying widow or widower with $25,000 to $34,000 income.
  • Married filing separately and lived apart from their spouse for all of 2020 with $25,000 to $34,000 income.
  • Married filing jointly with $32,000 to $44,000 income.

Up to 85% of a taxpayer’s benefits may be taxable if they are –

  • Filing single, head of household or qualifying widow or widower with more than $34,000 income.
  • Married filing jointly with more than $44,000 income.
  • Married filing separately and lived apart from their spouse for all of 2020 with more than $34,000 income.
  • Married filing separately and lived with their spouse at any time during 2020.

If all this sounds very complicated, you’re not alone! Give one of our Teipen CPA Group CPAs a call, and we’ll help you figure out your (taxable) bottom line.