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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 found herself in that very situation one year and was shocked she would owe tax on her social security benefits.
If Social Security is Your Only Income. There are general rules for minimum income 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.
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 are:
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).
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:
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 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!