Question of the Week: Should I file a Tax Return If I Receive Social Security Benefits?
Many people who receive Social Security benefits always wonder if their benefit is taxable and if they should file a tax return. To help answer this question, let’s first determine what Social Security benefits are.
Social Security benefits including the following below and may be taxable:
- monthly retirement
- disability benefits
Around tax season, you will receive Form SSA-1099, which will report the total benefits.
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Several factors determine if any portion of your Social Security benefits are taxable. If the only income you received during the tax year is Social Security benefits or equivalent railroad retirement benefits, then the benefits might not be taxable and you might not be required to file a tax return.
If you received income from other sources, the benefits will generally not be taxable unless your modified adjusted gross income (MAGI) is more than the base amount for your filing status.
How to Calculate Taxable Portion of Your Social Security Benefits
To figure out the taxable portion of your benefits, compare the base amount for your filing status with the total of:
- One-half of the Social Security benefits
- All other income (including tax-exempt interest)
When making this comparison, you should not reduce other income by any exclusion for:
- Interest from qualified U.S. savings bonds
- Employer-provided adoption benefit
- Foreign earned income or foreign housing
- Income earned by bona fide residents of American Samoa or Puerto Rico
To figure out the taxable portion of Social Security benefits, compare the base amount to your filing status.
The base amounts are:
- $25,000 if filing Single, Head of Household, or Qualifying Widow(er)
- $25,000 if filing Married Filing Separately and lived apart from the spouse for all of the tax year
- $32,000 if filing Married Filing Jointly
- $0 if Married Filing Separately and lived with the spouse at any time during the year
Social Security Benefits Calculate Example
Jasper and Colleen (both over age 65) are married, filing a joint return, and both received Social Security benefits during the previous year. In February of the current tax season, Jasper received Form SSA-1099, showing net benefits of $7,000. Jasper also has a taxable pension of $22,000 and interest income of $1500, but has no tax-exempt interest income. Colleen received Form-SSA, showing new benefits of $3,000.
(Jasper SSB = $7000) + (Colleen SSB = $3000) = Total $10,000 / 2 = $5,000
(Total SSB = $5,000) + (All other income = $23,500) = Total amount calculated = $28,500
Jasper and Colleen’s benefits are not taxable for the previous year because the amount calculated of ($28,000) is less than the base amount shown above of ($32,000) for Married Filing Jointly.
Even though their benefits are not taxable, they must file a return for the current tax season because their taxable gross income ($23,500) exceeds the minimum filing requirement for their filing status.
I hope this breakdown of understanding how receiving Social Security Benefits affect your taxes. Let me know if you’ve ever had any issues in the past in the comment section below. If you want more handy tax tips, then feel free to check out my latest articles here.
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**Note: Each client circumstance will vary on a case by case basis**