Are Social Security benefits taxable?
We’re sad to say that, yes, even when we retire we can’t expect Uncle Sam not to reach in and take a piece of the pie.
It all depends on your provisional income, as up to 85% of your Social Security may be subject to federal income taxes. Now let’s figure out your provisional income to check if you should expect this massive income cut or not.
You must first take your modified adjusted gross income, add half of your benefits and add all of your tax-exempt interest.
If you go on the IRS website you’ll find a nifty little calculator that will help you determine in which category you’ll fall.
Let’s say your provisional income is less than $32,000 if you’re married and filing jointly or less than $25,000 if you’re single. In that case, congratulations, there’s no tax on your Social Security benefits.
However, 50% of your benefits can be taxed if your income is between $32,000 and $44,000 for married couples and $25,000 to $34,000 for singles.
Finally, up to 85% of your benefits will be taxed if you’re above those two thresholds, depending on whether you’re single or filing jointly.
The good news is that most states do not tax social security, so it might be a good idea to research which do and which don’t. Relocating for your golden years, while it may sound daunting, might be extremely beneficial to your savings.
