Daily Tax Tip Spotify Podcast and/or WordPress Blog Post and Taxable Social Security Benefits

This Tax Tip Spotify Podcast and/or WordPress Blog Post deals with if you are currently receiving social security (or equivalent railroad retirement) benefits, you may have to include in income a portion of the net benefits you receive during the year. If you receive either of these benefits during the year, you should receive a Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, showing the gross amount and net amount of benefits you received.

Generally, if you are a U.S. citizen or resident, you are subject to federal income tax on a portion of your social security benefits only if the sum of the your modified adjusted gross income (MAGI) plus 50 percent of the social security benefits you received exceeds a base amount. Your base amount is:

1. $32,000 if you are married filing jointly,
2. $0 if you are married filing separately and lived with your spouse at any time during the tax year, or
3. $25,000 in any other case.

If you are married and file a joint return, you and your spouse must combine your incomes and benefits to figure whether any of your combined benefits are taxable, even if only one of you received social security benefits.

If your social security benefits are taxable, the amount of such benefits you must include in your gross income is generally equal to the lesser of:

1. 50 percent of the social security benefits you received, or
2. 50 percent of the amount by which the sum of your MAGI and 50 percent of the social security benefits received exceeds your base amount.

In some cases, however, you may have to include in income up to 85 percent of your benefits. Special rules apply if you receive a lump-sum distribution of social security benefits; if you have repaid social security benefits and your repayments exceed the gross benefits you receive; or if you receive social security benefits, have taxable compensation, contribute to a traditional IRA, and are covered (or your spouse is covered) by an employer retirement plan.

Taxable social security benefits are included in the gross income of the person who has the legal right to receive the benefits. Thus, for example, if you and your child receive social security benefits but the check is made payable to you, then you use only your portion of the benefits to determine if and how much of the benefits are taxable to you. Your child must use his or her portion of the benefits to determine if and how much of the benefits are taxable.

Under tax treaties, if you are a U.S. citizen who is a resident of Canada, Egypt, Germany, Ireland, Israel, Italy, Romania, or the United Kingdom, you are exempt from U.S. tax on your social security benefits (if you are a resident of Italy, you must also be Italian citizen to qualify for exemption).

If you are a nonresident alien, the rules discussed here do not apply to you. Instead, 85 percent of your benefits are taxed at a 30 percent rate, unless exempt (or subject to a lower rate) by treaty. Under tax treaties, residents of Canada, Egypt, Germany, Ireland, Israel, Italy, Japan, Romania, and the United Kingdom are exempt from U.S. tax on their benefits.

Please call me at your convenience so that we can discuss the rules for the taxation of social security benefits as they apply to your particular situation.

Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.

DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260

Toll Free: (877)CPA-Help or (877)272-4357
Cell: (760)567-3110
Fax: (760)836-0968

Email: DonFitchCPA@paylesstax.com
Website: https://www.paylesstax.com

P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.

(Updated 05252021-1 320-465)