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Taxation of Social Security Benefits

Up to 85% of Social Security benefits may be taxed.  The exact amount that is subject to tax is determined via a somewhat confusing calculation with non-intuitive results. In addition, once you know how much is taxed, the marginal impact from that income may be much higher than one might expect, e.g., if it pushes, say, other income (e.g., investment income) into a higher tax bracket. So, knowing the amount subject to tax may really be just one important input.

There's a good free on-line calculator to estimate the amount subject to tax: How much of my social security benefit may be taxed?

In my own case, I try to have a spreadsheet to estimate my taxes for the year.  Part of that spreadsheet has a "subroutine" to estimate the amount of social security that night be subject to tax.  As others might have an interest in that kind of calculation, I attach the excel spreadsheet "subroutine" here.  The input cells are in yellow and the other cells are protected (although you can turn that off; there is no password).

If anyone finds a significant difference between my spreadsheet and the link above, please let me know so I can correct it.
Loren, I compared your spreadsheet to mine at a couple of different points and found it to match really well.

Just so others are not misled, it is important to remember that even though a portion of your SS income may be subject to taxation (that is, included in your taxable income), that does NOT mean you will actually pay taxes on it as it may not exceed your deductible (standard or itemized). In my case almost 13% of my SS benefits may be taxable, but my taxable income is still zero because of the standard deduction.

But I think that your subroutine is pretty much on the money.
I ran a number of cases for Married Filing Jointly, with the following results.  Across the top is the annual Social Security Benefit. (In 2018, 88,324 is the maximum social security benefit possible for two people combined claiming at Age 70). Across the side is the sum of AGI excluding Social Security plus Tax Exempt Interest.  In the body of the table is the percent of the social security benefit that would be added to AGI.
(AGI including Taxable Social Security less deductions would be taxable income.)
It is possible to interpolate from between two rows to find a between figure as I have included all the breakpoints if they fall between the $10 k increments I used for every column..
In the upper left shaded in green, the benefits are not taxed. The lower left shaded in red have the maximum share of benefits taxed.  The orange shaded area is in between.
It is somewhat ironic that with incomes (AGI ex SS + TEI) at ~$40k and above, if you have a lower social security benefit, a larger portion of it may be taxed.  (However, the actual dollar amount (rather than percentage) will be lower.)
when you couple that 85% taxable to,Means Testing for part B it gobbles up 1/3 your SS. Who is saying that the wealthy get off easy in the USA ?
(09-01-2018, 09:21 PM)petdereves Wrote: when you couple that 85% taxable to,Means Testing for part B  it gobbles up  1/3 your SS.  Who is saying that the wealthy get off easy in the USA ?

15% tax on capital gains is less than the marginal tax on most salaries. If you are wealthy, SS is a small part of your income, assuming one manages the wealth reasonably well.
I use a great tax calculator for free I tested it last year against my actual and it was 100% correct so I am using it for my estimated this year--it automatically adjusts your social security depending on your income as well as adjusts the the Qualified Dividends to the portion that is nontaxable below the new level of income--also limits the deductions to the new law--very helpful.
Xlar, thanks very much for that calculator suggestion. It contains many different, useful calculators. Appreciate it!
(09-16-2018, 12:23 AM)RedwoodDreams Wrote: Xlar, thanks very much for that calculator suggestion. It contains many different, useful calculators. Appreciate it!

Perhaps not pertinent to this discussion, but perhaps so: you can reduce the % of your SS that is taxable by making Qualified Charitable Donations directly from your IRA to 501-c-3 charitable organizations.  You will not be able to list those as deductions if you itemize, but in my case it worked out better than itemizing. With the current tax law and larger standard deduction, it makes even more sense for me--I will not itemize for the first time in many years.  I have a Fidelity IRA checking account and I send the checks directly, so that part is pretty simple.  However, you have to keep track of these checks and be prepared to present the evidence to the IRS.  I do that by going to my account history regularly, find the image of the check and deposit record, slide those to my desktop (Mac), then to a spreadsheet that is formatted for printing ten of them to a sheet of paper.  So that part is not so simple.
My CPA has provided me with a tax projection worksheet that I use to plug in information. It also compares the prior year to the current year. That is very helpful this year with the change in rates and the standard deduction. Good suggestions above as well. I've been evaluating the QCD closely to see how it impact my total deductions vs the standard deductions. Spending time analyzing this information is critical every year and worth the time and effort.

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