Social Security Benefits
When are Benefits Taxable?
Up to 85% of the benefits received may be taxable to taxpayers on their federal returns. It is not taxable if income (which includes any tax-exempt interest and half the Social Security benefits) does not exceed these base amounts:
$25,000 – Single, Head of Household, Qualifying Widow(er)
$25,000 – Married Filing Separately and did not live with a spouse at all during the year (computed the same as Single)
$32,000 – Married Filing Jointly
$0 – Married Filing Separately and did live with a spouse at some time during the year.
How Much Is Taxable?
If all other income plus half the Social Security benefits are more than the following stated base amounts, up to half of the benefits must be included in taxable income. The following are base amounts for the applicable filing status:
$25,000 – $34,000 – Single, Head of Household, Qualifying Widow(er) and Married Filing Separately (and lived apart from the spouse)
$32,000 – $44,000 – Married Filing Jointly
If all the other income plus half the Social Security benefits are more than the following adjusted base amounts, up to 85% of the benefits must be included in taxable income.
$34,000 – Single, Head of Household, Qualifying Widow(er)
$34,000 – Married Filing Separately and lived apart from spouse for the entire year
$44,000 – Married Filing Jointly
$ 0 – Married Filing Separately and lived with spouse at any time during the tax year
Taxpayers who file Married Filing Separately and live with their spouses must include up to 85% of their benefits in their taxable income.
Railroad Retirement Benefits
Railroad Retirement Tier I benefits are equivalent to Social Security benefits and are treated as such.
Railroad Retirement Tier II (A retirement plan that is treated as a pension). Benefits are the amount above the Social Security equivalent. This benefit is treated as a pension. As with other pensions, the “cost” they invested is recovered tax-free. It is usually necessary to use the Simplified Method to figure the taxable portion of Tier II benefits. When using the Simplified Method Worksheet, the tax preparer must know the age of the taxpayer when he started drawing his retirement, how many payments were received in the tax year and how much has been recovered tax-free since 1986. When the taxpayer has recovered his cost, the entire Tier II benefit becomes taxable.