Many provisions of the Internal Revenue Code are complicated. Proper interpretation of the rules and regulations contained in these provisions requires the assistance of an experienced and knowledgeable tax professional. The sixth part of the series about the most confusing provisions of the Internal Revenue Code addresses taxes on social security benefits.
Why Is It Confusing?
- Complicated formula to determine benefits
- Requires a lengthy multi-step worksheet to calculate
At one time, Social Security benefits were tax-free. Later, as part of a program to “save” Social Security, Congress enacted new legislation which taxed up to 50% of benefits. Later, this amount increased and benefits were taxed up to 85%, with Congress putting the additional revenue in Medicare. The complicated formula and the eighteen line, twenty-step worksheet used to determine the percentage of benefits subject to taxation aren’t necessarily new, but as the number of Americans receiving Social Security increases over the next few decades, the number of taxpayers affected by this burden is significant.
If a social security recipient’s income is between $25,000 and $34,000 on a single return or between $32,000 and $44,000 on a joint return, up to 50% of benefits may be taxed. If provisional income is more than $34,000 on a single return or $44,000 on a joint return, it’s probable that 85% of benefits will be taxed, based upon numbers for 2015).
The average monthly amount of a Social Security benefit check is $1,294. Annually, this adds up to $15,528. Thus, if benefits are near average and the only source of a taxpayer’s retirement income, it’s likely that you won’t pass the threshold for paying taxes on any benefits.
As a side note, New York State does not tax Social Security benefits or public pensions. It also allows an exemption of up to $20,000 for private pensions and out-of-state government pensions. New York state law grants local governments and public school districts the option of granting a reduction of the amount of property taxes paid by qualifying seniors 65 and older.
A tax professional may evaluate anyone’s situation to help determine the wisdom of any year-end tax savings moves. If you are an individual or business in the New York or Tri-State area and have any question about taxes, especially in planning ahead for the next filing season, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
