7 Ways to Know if Your Social Security Benefits are Taxable

If you received Social Security benefits in 2011, did you know that your benefits could be taxable?

Make sure you review Form SSA-1099 from the Social Security Administration to determine the total amount of benefits you received for the year. You will need this information to determine if your benefits are non-taxable, partially taxable, or wholly taxable.

The key, determining factor here is what your total income is from other sources.

Social Security benefits are only one source of income so if you are earning money elsewhere, you may end up paying a significant amount in taxes on all of your sources of income.

Here are the IRS’s seven tips for determining whether your social security benefits are taxable:

1- Determine what your income level is. The amount of your taxable Social Security benefits depends on your income and marital status.

2- Determine all sources of income. If your Social Security benefits were your only source of income in 2011, you benefits won’t be taxable – you probably won’t even need to file a federal income tax return. If you did earn an income from multiple sources, part or all of your benefits may be subject to income tax.

3- Determine your modified adjusted gross income. If you received income from several sources, your Social Security benefits won’t be taxed if your modified adjusted gross income is more than the base amount for your filing status. Keep in mind that this amount varies depending on your filing status.

4- Calculate your taxable benefit on Form 1040A. The easiest way to determine whether you need to report Social Security benefits as income is to use a tax software program. You can also follow the instructions in the Form 1040 Instruction booklet.

5- Computing amount of benefits that are taxable. You can crunch the numbers fairly easily to determine whether some of your benefits will be taxable: Add one-half of the total Social Security benefits received to all of your other income, including tax-exempt interest and other exclusions from income.

Compare this amount with the base amount for your filing status. If the total is more than the base amount, some of your Social Security benefits may be taxable.

6- Understand the base amounts. The 2011 base amounts, according to the IRS, are as follows: $32,000 for married couples filing jointly; $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouse at any time during the year; and $0 for married persons filing separately who lived together during the year.

7- Review IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. You can find more specific details about taxable Social Security benefits including deductions related to your benefits in Publication 915 from the IRS.

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