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When is Social Security Income Taxable?

July 14, 2017

When Is Social Security Income Taxable?

It depends


Provided by Mark Nabell


Your Social Security income could be taxed. That may seem unfair, but it’s a possibility.


Retirees have had to contend with this since 1984. Social Security benefits became taxable above certain yearly income thresholds in that year. Frustratingly for retirees, these income thresholds have been left at the same levels for 32 years. 1


Those frozen income limits have exposed many more people to the tax over time. In 1984, just 8% of Social Security recipients had total incomes high enough to trigger the tax. In contrast, the Social Security Administration estimates that 52% of households receiving benefits in 2015 had to claim some of those benefits as taxable income. 1


Only part of your Social Security income may be taxable, not all of it. Two factors come into play here: your filing status and provisional income.


Social Security defines your provisional income by adding your adjusted gross income, any non-taxable interest (tax free interest) received, and 50% of your Social Security benefit income. (Your combined income is actually a form of modified adjusted gross income, or MAGI.) 2


Single filers with a combined income from $25,000-$34,000 and joint filers with combined incomes from $32,000-$44,000 may have up to 50% of their Social Security benefits taxed. 2


Single filers whose combined income tops $34,000 and joint filers with combined incomes above $44,000 may see up to 85% of their Social Security benefits taxed. 2


What if you are married and file separately? Your benefits will most likely be taxed no matter how much you earn or how much Social Security you receive.


You may be able to estimate these taxes. You can use an online calculator or the worksheet in IRS Publication 915 worksheet.   


Some sates tax Social Security payments.  Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia all tax social security, but you need to weigh a state’s entire tax picture for a better understanding of total tax cost. 


What can you do if your benefits may be taxed? You could explore a few options to try and lessen or avoid the tax hit, but keep in mind that if your provisional income is far greater than the $34,000 single filer and $44,000 joint filer thresholds, your chances of averting tax on Social Security income are remote.   If your provisional income is reasonably near the respective upper threshold, though, some moves might help.


If you have a number of income-generating investments, you could try and restructure your portfolio, so that less income and tax-exempt interest are produced annually.  You could try tax deferral with some investment structures.


Charitable giving can help. If you are 70½ or older, you can gift to a qualified charity with as much as $100,000 in a single year. The amount of the gift may be used to help satisfy your Required Minimum Distribution (RMD), and the amount will not be counted in your adjusted gross income. 


Roth IRAs can help. Distributions from Roth IRAs and Roth retirement plan accounts are tax-exempt as long as you are age 59½ or older and have held the account for at least five years. 4


Mark Nabell may be reached at 910-239-9130 or


Registered Representative offering securities and advisory services through Cetera Advisors LLC, Member FINRA / SIPC. Cetera is under separate ownership from any other named entity.



1 - [12/15]

2 – The Motley Fool, How to calculate Provisional Income

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3 - [7/16]

4 - [1/26/16]