Social Security
Many retirees shudder at the mere mention of “provisional income”. That’s because this figure can be the difference between paying or avoiding being taxed on their Social Security. You’ll need three things in order to figure yours out: your tax-exempt interest, half of your Social Security benefits and your modified adjusted gross income. Adding these together will bring you to your provisional income.
Those who have a provisional income lower than $25,000 don’t have to worry about taxes on their benefits. The same goes for joint filers with $32,000.
Those who have a provisional income between $25,000 and $34,000 will have to pay taxes on 50% of their benefits. The same goes for joint filers with a provisional income between $32,000 and $44,000.
Finally, single filers who reached a figure higher than $34,000 will have to pay federal income tax on up to 85% of the benefits. Married couples who file jointly will also pay taxes on 85% of their benefits if their provisional income is $44,000.
This may be especially heartbreaking considering the fact that before 1983 Social Security benefits were tax-free for everyone.
