This one is for all the grandparents out there. Do you have to pay income tax on social security? How will it impact the taxes on your other income from interest and dividends?
Whether or not your social security benefits are taxable depends on your total income and filing status. In addition, it changes from year to year, so while your social security benefits may have been tax free last year, you could owe tax this year.
My grandma recently found herself in that very situation this year and was shocked she would owe tax on her social security benefits.
How Social Security Benefits Are Taxed
If Social Security is Your Only Income. There are general rules for How Much Money Do You Have to Make to File Taxes? based on gross income. However, gross income doesn’t include social security benefits, so as long as Social Security benefits are your ONLY income, your benefits are not taxable.
You’ll get a SSA-1099 form which shows the amount of social security income you received.
Social Security Plus Other Income
If you have other income besides your social security, we’ll have to dig a little deeper:
When Social Security Benefits are Taxable. If you have other income in addition to your social security benefits, you’ll need to use the following formula to determine if your social security is taxable.
You must file a tax return if the following calculation is true:
1/2 (Total Social Security Benefits) + All Other Income > Base Amount
The Social Security base amounts for 2011 taxes are:
- $25,000 (single, head of household, qualifying widow with dependent child, married filing separately who did not live with their spouses at any time during the year)
- $32,000 (married filing joint)
- $0 (married filing separately, but lived together)
When Social Security Benefits are Not Taxable. And in the reverse situation, you do not need to file a tax return, and your social security benefits are not taxable if the following is true:
Half of your Social Security plus all your gross income from other sources is less than or equal to $25,000 (or $32,000).
What is All Other Income?
In the calculation you have to add all other income to half the social security benefits. What is included in all other income? Almost everything. Be sure to include:
- Taxable pensions
- Interest and Dividends
- Other taxable income
- Tax-exempt interest
- Interest from U.S. savings bonds
- Employer-provided adoption benefits
- Foreign earned income or foreign housing
Social Security Tax Filing
If you will have to file a tax return, you can see how much tax you will owe on your social security benefits using the 2011 Tax Calculator.
The free edition of TurboTax works well for filing simple returns with social security benefits, or you can figure it by hand, like my grandma prefers!