Eric Asked:
I started collecting Social Security in 2018, and worked part time to the Social Security limit. How does that affect my taxes?
My SS income = $21,800 and Part Time income = $17,500
Up to 85% of Social Security Can Be Taxable
It is possible you will have to pay some additional taxes due to your Social Security being taxed. Up to 85% of your Social Security benefits can become taxable depending on how much you earn in total. The formula is based on 1/2 of your Social Security income plus your Modified Adjusted Gross Income (MAGI).
While the definition for MAGI changes for each part of the tax code, MAGI is defined here as including your Adjusted Gross Income from your tax form (which includes retirement account distributions) and then adds in any tax exempt interest, usually from investments in government bonds.
Comparing the above Calculation to IRS-set Hurdles
After adding 1/2 of Social Security plus MAGI, you would compare this calculation to the "hurdles" the tax code identifies for taxation of Social Security. If you go above the first hurdle, 50% of your Social Security becomes taxable. If you go above the second hurdle, up to 85% of your Social Security becomes taxable.
Married Filing Jointly Hurdles
For a couple who files Married Filing Jointly (MFJ), the first hurdle is $32,000 and the second hurdle is $44,000. So if the calculation above is between $32,000 and $44,000 up to 50% of your Social Security income must be listed as income on your tax return and will be subject to income tax. If the calculation is above $44,000, then up to 85% of your Social Security income must be listed as income on your tax return and will be subject to income tax.
Married Filing Separately Hurdles
If you file Married Filing Separately (MFS) and didn't live apart from your spouse, your hurdles are $0. This means up to 85% of your taxes can be taxable. This is one of the many reasons taxpayers should be careful about using the MFS filing status, and should seek the advice of a competent professional before filing theirs taxes in this way.
All Other Filers Hurdles
For any other taxpayer who is filing under any status other than MFJ or MFS, the first hurdle is $25,000 and the second hurdle is $34,000. So if the calculation above is between $25,000 and $34,000 up to 50% of your Social Security income must be listed as income on your tax return and will be subject to income tax. If the calculation is above $34,000, then up to 85% of your Social Security income must be listed as income on your tax return and will be subject to income tax.
Your Situation
It is impossible to tell whether any of your Social Security income is taxable based on the information you provided. If you are filing MFJ and you don't have any investments, retirement plan income, or other income impacting your Adjusted Gross Income, then it is unlikely any of your Social Security will be taxable.
If you are single, filing as any status other than MFJ, have investments, have a higher AGI than the part time income you listed, or are receiving distributions from an 401(k), IRA, annuity, or any other income; then it is likely some portion of your Social Security will be taxable.
You may want to seek the guidance of a professional tax preparer to help you with filing your taxes. The information here cannot address your personal situation due to the lack of data, and is intended as a guide to get you started and not tax advice.
Joshua Escalante Troesh is a tenured professor of Business at El Camino College and the founder of Purposeful Finance. He is also the owner of Purposeful Strategic Partners, a fiduciary and fee-only financial planning firm and a Registered Investment Advisor. He can be reached for comment at info@purposefulfinance.org