More likely than not, you’re one of the millions of Americans who have paid into Social Security. What you might not know is that there are ways to avoid being taxed on your benefits — it’s a little complicated though.
According to the Social Security Administration (SSA):
If you file a tax return as Single, Head of Household, or a Widow(er) and your combined income is: between $25,000 and $34,000, then you may be taxed on up to 50% of your benefits, and greater than $34,000, then you may be taxed on up to 85% of your benefits.
If you file a tax return as Married Filing Jointly and your combined income is: between $32,000 and $44,000, then you may be taxed on up to 50% of your benefits, and greater than $44,000, then you may be taxed on up to 85% of your benefits.
To start, we should first define what SSA means by “combined income.” Combined income is your adjusted pre-tax income for the year, plus nontaxable interest, plus half of your Social Security benefits.
Your adjustable gross income is the amount that you and your spouse (if you’re married) earned in a year from your wages, dividends on investments, pensions, and any and all sources of income that you report. Some savings bonds might be tax-exempt as well.
According to The Motley Fool
“Here’s a quick example: Your adjusted gross income is $30,000 and you have $4,000 in nontaxable interest, and you received $10,000 in Social Security benefits this year, then you would add $30,000 + $4,000 + $5,000, for a combined income of $39,000.
From there, things get slightly more complicated. Just because you can be taxed on up to 50% or 85% of your Social Security benefits doesn’t mean you will be. The government says that you are to be taxed on the lesser of half of your Social Security benefits or half of the difference between your combined income and the lower range given by the SSA in the rules listed above.”
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