In a comment on the article last week (Adjusting Withholding Saved 44% of the Tax Bill), a question came up about the taxability of Social Security benefits. It can be complicated, hopefully this explanation will help you understand taxability of Social Security a bit better.
Social Security is taxable at three different levels, based upon how much other income you have and your income tax filing status.
First, you need to calculate your Provisional Income – which is 50% of your household Social Security benefits plus all of your other taxable income, plus any tax-free income.
Next, there are two breakpoints in the taxation – if your filing status is Married Filing Jointly, the breakpoints are $32,000 and $44,000. If your filing status is Single or Head of Household the breakpoints are $25,000 and $34,000. These breakpoints are the same if your filing status is Married Filing Separately and the couple does not live together during the tax year. If your filing status is Married Filing Separately and the couple lives together, there are no breakpoints; in this case your Social Security is always 85% taxable.
Now it gets complicated – if your Provisional Income (defined above) is less than the first breakpoint based on your filing status, then none of your Social Security is taxable.
If your Provisional Income is greater than the first breakpoint but less than the second breakpoint, the amount greater than the breakpoint is 50% taxable. The amount under the first breakpoint is not taxed.
If your Provisional Income is greater than the second breakpoint, the amount above the second breakpoint is 85% taxable. This amount is added to the part that is 50% taxable (between the two breakpoints). The maximum amount that is taxable is 85%.
So for certain income levels, there is a sliding scale of the rate of taxability, ranging from 0% up to 85%. The chart below shows the taxation rates for a few levels of Social Security benefits with various income ranges. The chart shows only Married Filing Jointly status.
As you can see, as the amount of your Social Security benefit increases, the window of taxation between 0% and 85% widens.
Taxability of Social Security Calculator
Below is a calculator I’ve developed to show you the amount of taxable Social Security benefits depending on your filing status and your other income amounts. Let me know if you have questions about this.