You're working, and you've got a family that depends on you - both now and down the road. Where do you invest your money? Do you borrow against the equity in your house? Through a preferred provider relationship with USAA, The American Legion can provide expert financial advice to just about any question.
We’ve gotten lots of questions on this topic in the last couple of weeks, so we’ll use your question to put it all out there. First, IRS Publication 915 lays it all out in detail. There’s actually a worksheet in the publication that you can use to determine whether any of your Social Security benefits are taxable. But here’s how it works.
First, take one-half of the total of Social Security benefits received throughout the year. The total benefit is reported to you on Form SSA-1099. To this number, add any other taxable pensions, wages, interest, dividends, capital gains and tax-exempt interest income. This gives you a total to compare to what the IRS calls a base amount. Your base amount is determined by your filing status. So, we’ll look at three different scenarios:
So there you have it! Hopefully, this clears up any confusion regarding the taxation of your Social Security benefits. One thing that’s interesting about the calculation is that unlike many thresholds in the tax code, the dollar amount of these thresholds have not changed since they became law back in 1983 (50 percent) and 1993 (85 percent). So, more and more folks are finding their Social Security to be a taxing situation…