Social Security benefits were initially exempt from federal income tax, but in 1983 Congress made social security partially taxable. Then In 1993 Congress added a second income threshold that increased the share of social securty benefits subject to taxation. Today, some recipients of Social Security can collect all of their benefits tax-free. However, you may be required to pay taxes on your Social Security benefits, and this is where provisional income comes into play.

Provisional income is a measure used by the IRS to determine whether or not recipients of Social Security are required to pay taxes on their benefits. Provisional income is calculated by adding up a recipient's gross income, tax-free interest, and 50% of your Social Security benefits.

Three steps for Calculating PROVISIONAL Income

1)  Start with your Adjusted Gross income (AGI), which is the total amount of money you earn NOT including your Social Security benefits. You can find this amount on your tax return

2) Add any tax-free interest you received, such as interest from a municipal bond, which is normaly tax-exempt at the federal level ( SURPRISE - your Provisional Income can make Municipal Bond Income TAXABLE )

3) Calculate 50% of your Social Security benefit and add that amount to your previous totaL

..............................................................................................................................................................................

EXAMPLE -- Harry a Single Person receives Social Security Benefits in calendar year 2017

    1) Harry has Adjusted GROSS Income (AGI) received from his 401k diistribution of $20,000 

    2) Harry earned $4,000 in municipal bond interest.

        Add these two amounts together to arrive at his Modified Adjusted Gross Income (MAGI) of $24,000.   

    3)  Harry receives $28,000 in Social Security benefits in calendar year 2017.

         a) Divide his Social Security benefits in half to arrive at $14,000.

         b) Add the $24,000 modified adjusted gross income

             and the $14,000 portiion of Harrys Social Security

         c) resulting in Harry's PROVISIONAL Income of $38,000

     4) Using the table below calcualte the portion of Harry's Social Security that is TAXABLE

          a)  $4,500 of Harry's Social Security i.e. $9,000 at 50 pct of Provisional Income  . . . . . . . .                                                                              between $25,000 and $34,000 

          b)  $3,400 of Harry's Social Security i.e. $4,000 at 85 pct of Provisional Income . . . . . . . . . . . . . . . . .  . . .  . . . . . . . . . . . . . . . . . . . . . .  . . . .  in excess of $34,000

          c)  $7,900 of Harry's Social Security is TAXABLE (taxablle = a + b above)

 

How provisional income affects taxation

Your provisional income and your tax filing status decide whether, and how much, your Social Security benefits are taxed:

Tax Filing Status

Provisional Income

Social Security Taxation

Single or head of household

Less than $25,000

0%

$25,000 - $34,000

Up to 50%

More than $34,000

Up to 85%

Joint filers

Less than $32,000

0%

$32,000 - $44,000

Up to 50%

More than $44,000

Up to 85%

 

We are Retirement Specialists. Ask us about Tax Exempt and Tax Deferred Insurance Contracts that DECREASE your Provisional Income. We offer insurance contracts that can provide Retirement Income for Life. Call us at 866-270-2870 for learn how to reduce taxes on your Social Security Benefits .

CLICK for ===>  NJ State Pension Taxes (PERS, TPAF) 

 

 

Our Website contains a wealth of information that is located in the Resources Menu. We  recommend you watch our Videos and view the FLIPbooks . Topics include: Retirement Income, Wealth Preservation, Tax Planning, Estate Planning, Risk Management and Planning Calculators. 

For more information click here Resources .|. Videos .|.  FLIPbooks .|. SiteMap .|

שומר שבת  

.

.
Copyright July 2018 Robert Grant, All Rights Reserved. This information may not be duplicated or published in any printed, broadcast or electronc form without advance written permission from Robert@AlpineAdvisers.com  ...