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The Formula for Figuring Out Tax on Social Security
By JLP | August 27, 2006
Here’s the formula for figuring out how much, if any, of your Social Security income will be taxed during retirement:
1. Take all your other income (including tax free municipal bond income but EXCLUDING Roth IRA income). To that, add in half the amount you will be receiving from Social Security.
2. If you are filing a joint return and the income from Step 1 is less than $32,000 (or less than $25,000 if you are filing single) you don’t owe any federal tax on Social Security.
3. If you are filing jointly and the income from Step 1 is between $32,000 and $44,000, then 50% of your Social Security is taxable at your normal tax rate. If your income is over $44,000, 85% of Social Security is taxable. For someone filing single, anything over $34,000 will mean that 85% of Social Security is taxable.
To learn more about taxation during retirement, see this Wall Street Journal article by Tim Lauricella titled When Work is Done, Tax Headaches Begin. The author offers up some things to think about.
Topics: Retirement Planning, Taxes | No Comments »