Are you considering post-retirement employment? If you’re collecting social security and thinking of returning to the work force, you may have questions about the effect of that income on the taxability of your benefits.
The answer: Under current law, part of your social security benefits may be taxable. How much? The basic rule is that up to 85% of your annual benefits can be subject to federal income tax when your “provisional” income exceeds specified thresholds. Generally speaking, provisional income is the sum of your adjusted gross income plus tax-exempt interest and one-half of your social security benefits.
Benefits are not taxed when your provisional income is below the threshold applicable to your filing status.
The federal thresholds, called base amounts, range from zero, if you’re married filing separately and live with your spouse all year, to $32,000, if you’re married filing jointly.
A $25,000 base applies when you file as single, head of household, or as a qualifying widow or widower with a dependent child. If you’re married, but file separately and do not live with your spouse during the year, you’ll also use the $25,000 figure.
Illustration: When you’re married, file a joint return, and your provisional income exceeds $32,000, a portion of your benefits will be taxed.
Please call us to discuss how income from a new business venture or job will impact your taxes. We’ll be happy to help with planning moves, such as the timing of retirement account distributions, that can ease the tax bite.David Bradsher, CPA