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Taxation of Social Security Benefits

April 13, 2006

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Depending on your total annual income, a portion of your social security benefit may be subject to income tax. If the total of your taxable pensions, wages, interest, dividends, other taxable income and any tax-exempt interest income plus half of your social security benefits are more than a base amount, some of your benefits will be taxable. Your base amount depends on the filing status on your US tax return Form 1040. The base amount is $25,000 for single and head of household filers and $32,000 for those married filing jointly. These dollar amounts are not indexed for inflation.

The amount of your social security benefits that you must include in taxable income depends on the total of your income plus half of your benefits. The higher the total, the more benefits that must be included in taxable income. You may have to pay income tax on anywhere from 50 percent to 85 percent of your social security benefits.

And remember, that's how the law stands now. By the time you retire, it's possible that all benefits will be taxable, or none (and we'd predict it's more likely to be all).

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