Do Social Security Benefits Count as Gross Income?

Your Social Security may not be taxed at all.

Your Social Security may not be taxed at all.

You might be envisioning your retirement years as a time to kick back and relax. However, you’ll still have at least a few responsibilities, including potentially paying income tax after age 70. Retirees often have taxable income from a variety of sources, including pensions, annuities, retirement plan distributions like 401(k)s and IRAs, as well as potentially taxable Social Security benefits.

Tip

According to the IRS, Social Security benefits may be included in your taxable income.

Taxes on Social Security Income

Up to 85 percent of your Social Security benefits can count as part of your gross income for income tax purposes, depending on what other income you have and your tax filing status. Each filing status has different threshold levels that determine what percentage of your Social Security benefits are taxable income. If your combined income doesn’t exceed the minimum threshold, none of your Social Security benefits are taxed. But, if you’re over the highest threshold, up to 85 percent can be subject to federal income tax.

Calculating Combined Income

Your combined income determines the portion of your Social Security benefits that constitute taxable income. To calculate your combined income, add your adjusted gross income plus any nontaxable interest income plus one-half of your Social Security benefits. For example, say your adjusted gross income is $12,000, you have $3,000 in nontaxable interest from state or local bonds and you receive $28,000 in Social Security benefits each year. Add the $3,000 in nontaxable interest income to your adjusted gross income to get $15,000. Then, add $14,000 – half of your Social Security benefits – to get $29,000 as your combined income.

Threshold Levels for 2018

The thresholds vary by filing status in 2018. For single filers, if you have a combined income of less than $25,000, your benefits aren’t taxable. If your combined income falls between $25,000 and $34,000, up to half of your Social Security benefits can be included as part of your taxable income. If your combined income exceeds $34,000, you have to pay taxes on up to 85 percent of your Social Security income. For joint filers, your combined income can be up to $32,000 before any of your Social Security benefits are taxable. If your combined income is between $32,000 and $44,000, up to half of the benefits are taxable, and if your combined income exceeds the $44,000 threshold, up to 85 percent of your benefits can be included in your taxable income for the year. If you’re married filing separately, at least some of your benefits will be taxable.

No Changes from 2017

The thresholds for calculating the percentage of your Social Security benefits aren’t indexed for inflation, so the same amounts apply for the 2017 tax year. However, the individual income tax rates are higher in 2017 than they will be for the 2018 tax year due to the tax cuts, so it’s possible that your taxes will decrease from 2017 to 2018 even if your income and benefits remain the same.

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About the Author

Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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