How to Get More Money from Social Security Part 4

Retirement Benefit Changes in 2015

How SS is taxed

For this series I have covered some social security claiming strategies. You can click here for the other articles in the series. I have received quite a few questions and have posted the answers online. You click here to see the FAQ. In this article we will cover how social security is taxed.

Tax Treatment of Social Security Benefits

Some people have to pay federal taxes on their Social Security benefits if they have substantial income from other sources like wages, investment income, rental income, or any other source of income that is reported on your tax return. Visit the FAQ sheet to see the income limits.

The tax rate you’ll pay depends entirely on your overall income bracket since Social Security is treated like ordinary income. However, according to IRS rules, you won’t ever have to pay taxes on more than 85 percent of your Social Security benefits.

Since your tax burden will vary according to your income, residence, and filing status, it’s a very good idea to consult a tax advisor who can offer you advice specific to your situation. One of the ways you can help maximize your income while reducing taxes, is to take as much income as possible from sources that are excluded from your provisional or combined income.

Combined income is the income that the SSA uses to calculate the taxation of your Social Security. It includes:

  • Your Adjusted Gross Income (AGI) – Total income minus deductions
  • Tax-Exempt Income – Income not subject to taxes such as municipal bonds
  • 50% of your Social Security Income

If these three sources of income is under $25,000 for singles ($32,000 for couples filing jointly), then your benefits aren’t taxable. If your combined income is $25,000 to $34,000 ($32,000 to $44,000 for couples), up to 50% of your benefits may be taxable. If your combined income is more than $34,000 ($44,000 for couples), up to 85% of your benefits may be taxable. If you are married and filing separately, you probably will pay taxes on your benefits.

Tips to Minimize Taxes on Social Security

Reduce your expenses. If married and filing jointly, try to keep you combined income under $32,000. For example, let’s say you are collecting $15,000 from Social Security (combined income counts 50% of this) and you withdraw $24,500 from your IRA. Your total income is $39,500 but your combined income is at $32,000 ($24,500 + half of $15,000). For 2014 your estimated federal taxes will be zero!

But unless you paid off your mortgage completely, you may need from than $39,500 a year. Then it is important to diversify your retirement income sources.

Diversify Retirement Income Sources

There are some potential excluded sources of income (from your combined income and taxes) such as:

You can take money from these sources to boost your income without raising your taxes.

I do want you to keep in mind that taxes are just one piece of your overall financial picture and it’s important not to let your concerns about taxes overshadow other important issues. These examples are basic and may not reflect your situation.

If you’re worried about the effect of taxes on your retirement income, it’s well worth consulting a qualified financial representative who can review your circumstances and provide some specific suggestions. You can also email me if you have further questions at or comment below!


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