Most retirees are not aware that Social Security income can be taxed. It is estimated that during 2009 alone $30 billion in taxes was collect on Social Security Benefits. The problem is the calculation used to determine the taxable amount of Social Security Income has not changed since 1983; more specifically the income break points used for the calculation have not been indexed to inflation for over 26 years.
In 1935, Franklin Delano Roosevelt promised the American Public that they would NEVER pay taxes on their Social Security Benefits and for almost 50 years Social Security had been free from Federal Income Taxes.
Faced with huge Federal deficits, in 1983, Congress and President Reagan amended the Social Security act to allow Social Security benefits to be subject to Federal Income Taxes. Social Security is taxable when your provisional income exceeds a base amount of $25,000 for single taxpayers and $32,000 for married / head of household taxpayers. Up to 50%, but no more than 85%, of your Social Security benefits can be taxable in a calendar year.
The table below identifies the income phase-out brackets along with the resulting percentage of Social Security benefits that could be taxed. By restructuring your retirement income and/or repositioning some of your taxable income sources into tax deferred accounts, you could realize a tax savings and a potential increase in your net spendable income. Use our calculators to see if this strategy works for you. Taxation of Social Security Benefits by Amount of Provisional Income | | Percentage of Benefit Taxed
| $25,000 or less
| $32,000 or less
| None
| Over $25,000 to $34,000
| Over $32,000 to $44,000
| Up to 50%
| Over $34,000
| Over $44,000
| 50% to 85%**
|
Securities and Investment Advice Offered Through Capital Financial Services, Inc. Broker/Dealer Investment Advisor Member FINRA, SIPC
* Source of Information: Social Security Administration website www.ssa.gov
|
