Many taxpayers are under the impression that Social Security benefits are not taxable income. While this is true for most taxpayers, some individuals do have to pay taxes on their Social Security benefits. Knowing if this law applies to you can help you prepare for your potential tax liability.
Generally, Social Security benefits are not taxable. However, this is because most Social Security recipients rely on their benefits for their living expenses and don’t receive income from other sources. Taxpayers that receive other forms of income during the year, (such as retirement income, interest, and wages) may be required to pay income tax on some of their benefits.
A simple way to find out if a portion of your benefits may be taxable is to divide your total annual benefits in half and then add all the income you receive from other sources. Take this amount and compare it to the base amount for your filing status that year. The base amount changes from time to time, but in 2012 the amount was $25,000 for those who filed as single, head of household, or qualifying widower, and $32,000 for those who filed a joint return. If the total of your benefits and income exceeds your base amount, then you’ll have to pay income tax on the portion of your benefits that is higher than your base amount.
This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services in greater Pittsburgh, including the communities of Allison Park, Hampton, Shaler, and Glenshaw.