A Guide to Taxes on Social Security Benefits

In many cases social security benefits, including survivor and disability benefits, may be taxable as income. SSI, or supplemental security income, payments are not. This guide should help you understand how the tax tables work for social security benefits. If your only income is from social security payments your benefits are probably not taxable.

A quick way to determine if any of your benefits are taxable to add one half of your total benefits to any other of your income including taxable interest. Take this amount and compare it to the base amount table for your filing status. If you made any repayments of social security benefits during the tax year you should deduct these repayments from the gross amount of benefits received for the year.

The base amounts for the 2008 tax year were $25,000 for single, head of household and qualifying widower. For the status of married filing jointly the base amount was $32,000. If you are married filing separately and did not live with your spouse at any time during the tax year you will use the amount in the single table. If you did live with your spouse but file separately your base amount is zero and there are other methods used for figuring your taxable payments. New base amounts will be available for 2009 but this is a general guide for determining taxability.

If you are a U.S. citizen residing abroad in certain countries your benefits are not taxable. At this time, these countries are Canada, Egypt, Germany, Ireland, Israel, Romania and the United Kingdom. You must be a dual citizen in Italy to receive this tax waiver.

If you have taxable social security benefits you must use IRS forms 1040A or 1040. You can not file using the 1040EZ form. If you have taxable benefits the taxable amount depends on your total income. In lower income levels generally only 50 percent of your benefits are taxable. In higher income levels up to 85 percent can be. A worksheet is included with the instructions for 1040 and 1040A forms. A worksheet is also available in the reference section of this article.

There are also deductions that you can take in relation to the benefits you receive. If you have received disability payments that you included as income and then had to repay these benefits, you may take an itemized deduction for part of the payments you included in your income. You may also take a deduction for legal expenses that you paid in order to collect your benefits.

References:

http://www.irs.gov/pub/irs-pdf/p915.pdf