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ginahoy  
#1 Posted : Monday, June 8, 2020 12:59:32 PM(UTC)

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I thought I understood the rules regarding taxable portion of social security benefits until I completed the worksheet for 1040 lines 5a & 5b (re: page 28 in 2019 1040 instruction booklet). Now I'm confused...

Let's say a married couple filing jointly has $32,000 taxable income (e.g., wages, interest, 401k distributions) plus $24,000 social security income and no non-taxable interest or Schedule 1 adjustments. In this case, since total income exceeds the $32,000 joint filer taxation threshold for social security, I would expect to pay tax on 50% of the social security income, or $12,000. However, when I plug these numbers into the Social Security Benefits Worksheet, it shows only $6,000 is taxable! Essentially, the 50% reduction is applied twice - once on line 2 and then again on line 13.

In effect, only 25% of social security income is taxed in this case. I must be doing something wrong! Please advise.

Edited by user Sunday, July 12, 2020 6:00:48 PM(UTC)  | Reason: Not specified

postalvet  
#2 Posted : Monday, June 8, 2020 1:51:43 PM(UTC)
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Originally Posted by: ginahoy Go to Quoted Post
I thought I understood the rules regarding taxable portion of social security benefits until I completed the worksheet for 1040 lines 5a & 5b (re: page 28 in 2019 1040 instruction booklet). Now I'm confused...

Let's say a married couple filing jointing has $32,000 taxable income (e.g., wages, interest, 401k distributions) plus $24,000 social security income and no non-taxable interest or Schedule 1 adjustments. In this case, since total income exceeds the $32,000 joint filer taxation threshold for social security, I would expect to pay tax on 50% of the social security income, or $12,000. However, when I plug these numbers into the Social Security Benefits Worksheet, it shows only $6,000 is taxable! Essentially, the 50% reduction is applied twice - once on line 2 and then again on line 13.

In effect, only 25% of social security income is taxed in this case. I must be doing something wrong! Please advise.


we just let our tax program figure it out for us.
remember you read it on an open forum


Don't be ashamed to call out the insults


trump lost


HoosierDaddy  
#3 Posted : Monday, June 8, 2020 5:50:23 PM(UTC)

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This is what it says at smartasset.com - If 50% of your benefits are subject to tax, the exact amount you include in your taxable income (meaning on your Form 1040) will be the lesser of either a) half of your annual Social Security benefits or b) half of the difference between your combined income and the IRS base amount. So in your case $6000 is the correct amount.
You can't fix stupid, but you can vote it out. https://www.youtube.com/watch?v=DG29PVMtAWE
ginahoy  
#4 Posted : Sunday, July 12, 2020 11:42:47 AM(UTC)

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Originally Posted by: HoosierDaddy Go to Quoted Post
This is what it says at smartasset.com - If 50% of your benefits are subject to tax, the exact amount you include in your taxable income (meaning on your Form 1040) will be the lesser of either a) half of your annual Social Security benefits or b) half of the difference between your combined income and the IRS base amount.

Sorry for the long delay, I missed the notification email. I found the source page for that (https://smartasset.com/retiremen...-security-income-taxable). Aside from my original question, it looks like the example on that page is wrong:

"Let’s look at an example. Say you’re a single filer who receives a monthly benefit of $1,461 (the average benefit after the cost of living increase in January 2019). Your total annual benefits would be $17,532. Half of that would be $8,766. Then let’s say you have a combined income of $30,000. The difference between your combined income and your base amount (which is $25,000 for single filers) is $5,000. So the taxable amount that you would enter on your federal income tax form is $5,000, because it is lower than half of your annual Social Security benefit."

Using the guidance given, would the taxable amount in this example not be $2,500?
Endless Summer  
#5 Posted : Sunday, July 12, 2020 1:29:21 PM(UTC)
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Originally Posted by: ginahoy Go to Quoted Post
Originally Posted by: HoosierDaddy Go to Quoted Post
This is what it says at smartasset.com - If 50% of your benefits are subject to tax, the exact amount you include in your taxable income (meaning on your Form 1040) will be the lesser of either a) half of your annual Social Security benefits or b) half of the difference between your combined income and the IRS base amount.

Sorry for the long delay, I missed the notification email. I found the source page for that (https://smartasset.com/retiremen...-security-income-taxable). Aside from my original question, it looks like the example on that page is wrong:

"Let’s look at an example. Say you’re a single filer who receives a monthly benefit of $1,461 (the average benefit after the cost of living increase in January 2019). Your total annual benefits would be $17,532. Half of that would be $8,766. Then let’s say you have a combined income of $30,000. The difference between your combined income and your base amount (which is $25,000 for single filers) is $5,000. So the taxable amount that you would enter on your federal income tax form is $5,000, because it is lower than half of your annual Social Security benefit."

Using the guidance given, would the taxable amount in this example not be $2,500?


Please don't rely on any source other than the IRS when it comes to something as important as figuring your taxes. Here's a link to the relevant doc...
https://www.irs.gov/publ...S_2019_publink1000293181

I don't know why this was made so confusing, but the 50% of SS is only used to determine if any of your SS benefits are subject to tax. It isn't that you get taxed on 50%, but the 50% is added to your other income to see if it triggers the tax.
ginahoy  
#6 Posted : Sunday, July 12, 2020 5:57:13 PM(UTC)

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Originally Posted by: Endless Summer Go to Quoted Post
Please don't rely on any source other than the IRS when it comes to something as important as figuring your taxes. Here's a link to the relevant doc... https://www.irs.gov/publ...S_2019_publink1000293181

Thanks Endless. As noted in my OP, that Pub 915 worksheet is what I started with (as reproduced in 1040 instructions).

Quote:
I don't know why this was made so confusing, but the 50% of SS is only used to determine if any of your SS benefits are subject to tax. It isn't that you get taxed on 50%, but the 50% is added to your other income to see if it triggers the tax.

My mistake was assuming the numbers in my example should produce the highest taxable percentage (before 85% kicks in), so I was surprised that the taxable portion in my example worked out to only 25%.

I just set up the social security worksheet in a spreadsheet and played around with different income amounts. Since there's an exclusion amount ($32k for MFJ), one would expect the actual taxable percentage to vary from 0% up to 50%, depending on the numbers. I identified a different set up numbers that produces a 50% taxable portion: If a couple's income other than social security is $38k and their ss income is $12k, then $6k of the $12k ss benefit is taxable. This revealed my error and restored my faith in the mechanics of the calculation!

Edited by user Sunday, July 12, 2020 5:59:14 PM(UTC)  | Reason: Not specified

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