(jb note: Astute reader JH pointed out an error in the calculation below, which I’ve corrected. The end result of the taxation increase is the same, but there was a problem in the calculated taxable income in the previous version.)
As you may be well aware, Social Security retirement benefits can be taxable to you, depending upon how much other income you have. What you may not be aware of is how this can seriously increase your tax rate for small amounts of additional income.
Provisional Income
So – in order to calculate how much of your Social Security benefit is taxable, it is necessary to determine the amount of your “provisional income” – which is your Modified Adjusted Gross Income (MAGI) plus 1/2 of your Social Security benefit plus any tax-exempt income you’ve received. If you are married and filing jointly (MFJ) and this amount is greater than $32,000, at least part of your Social Security benefit is taxable. The lower limit for all other filing statuses – single, head of household, qualifying widow(er) and married filing separately while living apart from your spouse – is $25,000. If your filing status is married filing separately and you continue to live with your spouse, the lower limit is zero.
The amounts mentioned above are just the first limit – if your provisional income is above those levels, up to 50% of your Social Security benefit is taxable – that is, added to your gross income. If the provisional income is above $44,000 and your filing status is MFJ, then up to 85% of your Social Security benefit becomes taxable. For all other statuses, provisional income above $34,000 triggers up to 85% taxability on your Social Security Benefit. It’s actually not always fully 85%; rather, it’s 85% of the amount that you’re over the limit or 85% of your Social Security benefit, whichever is less. (see the example below)
The Effect
Where this really hurts folks is when provisional income is just barely above the upper limit. See the example below – this is a married couple who earn a total of $40,000 in income (MAGI), plus a total of $16,000 in Social Security benefits:
| Modified Adjusted Gross Income | $40,000 |
| Plus 1/2 of Social Security Benefit | $8,000 |
| Provisional Income | $48,000 |
| Less base amount | $44,000 |
| Excess above base | $4,000 |
| 85% of excess | $3,400 |
| Plus 50% of the excess above the first base ($6,000) | $9,400 |
| 85% of Social Security Benefit | $13,600 |
| To include in gross income (lesser of previous two above) | $9,400 |
| New Gross Income | $49,400 |
So now watch what happens if these folks earn $1,000 more:
| Modified Adjusted Gross Income | $41,000 |
| Plus 1/2 of Social Security Benefit | $8,000 |
| Provisional Income | $49,000 |
| Less base amount | $44,000 |
| Excess above base | $5,000 |
| 85% of excess | $4,250 |
| Plus 50% of the excess above the first base ($6,000) | $10,250 |
| 85% of Social Security Benefit | $13,600 |
| To include in gross income (lesser of previous two above) | $10,250 |
| New Gross Income | $51,250 |
Normally, when someone of this income level (12% tax bracket) increases their income by $1,000, their tax would only increase by $120 – as you might expect. But with this provision to tax Social Security benefits based upon the provisional income that you bring in, when they add $1,000 to their annual income, their gross income is effectively increased by $1,850. As a result, this $1,000 increase in income has caused an increase in tax of $222 – for a rate of 22.2% on that $1,000 increase!
As you can see, for folks that are right in the edge of these taxation limits, this can be an outrageous impact on financial livelihood. If you happen to be in this position, it might be helpful to plan income (if you can) so that in one year you might not be impacted as much by this taxation, and then take the tax hit the following year. This can only be accomplished if you are somewhat in control of when you earn income or recognize gains.
As your MAGI increases, this effect becomes less and less, but it still is worth paying attention to – if you can plan around it, you might save yourself some extra tax!
Sterling Raskie, MSFS, CFP®, ChFC®
The latest in our Owner’s Manual series, A 401(k) Owner’s Manual, was published in January 2020 and is available on 
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And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.
One big take-away from this: Do your Roth conversions BEFORE you’re on Social Security.
If possible, yes. But even if you can’t do it all before Social Security starts, you might consider continuing a process of lifetime Roth conversions.
With the passage of the SECURE Act, there may be a compelling case to make small, incremental Roth conversions throughout your lifetime, including after starting Social Security benefits. Since your heirs can only take payments over 10 years after your death, it might make sense from a tax perspective to convert these funds gradually over time so that the tax hit is smaller in the long run.
Each individual needs to run the numbers for him or her self, because each case is going to be different.
Because the limits put in place in 1984 and in 1993 are set by law, they are not adjusted for inflation or SS cola. Generally the SS cola helps to increase the taxable amount of the SS benefit.
It is time to adjust the 1984 and 1993 limits put in place to determine the taxing of SS benefits.