A GUIDE TO TAXES ON SOCIAL SECURITY BENEFITS

If the IRS is taking a cut, make sure you know how to cover the bill.

- BY KIMBERLY LANKFORD

ON the campaign trail last year, President Trump vowed that he would eliminate taxes on Social Security benefits, and it's still one of several potential tax changes on the table. The proposal has been touted as a way to help retirees financially. But unless plans to remove these taxes become reality, many beneficiaries are still subject to them. Here's how taxes on Social Security benefits currently work, who has to pay them, steps you can take to reduce the taxes, and what you can do to bypass an unpleasant surprise at tax time.

HOW BENEFITS ARE TAXED

Social Security benefits were not taxable for the first few decades of the program's existence. But in 1983, up to 50% of benefits became taxable for single taxpayers whose “combined income”—also known as provisional income—was higher than $25,000 annually and for joint filers earning more than $32,000. Congress added another level of taxation in 1993, when up to 85% of Social Security benefits became taxable for single taxpayers earning more than $34,000 and joint filers earning more than $44,000.

More than 30 years later, those income levels and taxation amounts remain the same. “Since this isn’t adjusted for inflation each year, the portion of beneficiaries who are subject to the tax is increasing,” says Garrett Watson, director of policy analysis at the Tax Foundation. In 1984, fewer than 10% of Social Security beneficiaries had to pay taxes on their benefits; now, about half do.

Combined income is calculated as adjusted gross income plus tax-exempt interest income (such as from municipal bonds) and half your Social Security benefits. You can use the IRS’s tool at https://tinyurl.com/4b4jyx68 or the worksheet in the instructions for Form 1040 (www.irs.gov/forms-pubs/about-form-1040) to calculate your combined income and what portion, if any, of your Social Security benefits is taxable. The taxable amount is added to your income and subject to your income tax rate.