Tax Experts
Income Tax on Social Security Benefits
By Kevin McCormally, Editorial Director, Kiplinger.com
March 28, 2008
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Q. In 2008, what is the maxium wages that I can earn before my husband and I are taxed on social security benefits?
I work part time and earn $525.00 week and would like to bring my weekly income to $625.00, but not if I have to pay taxes on it. I will be 65 and in August and my husband is on Social Security disability. He will turn 65 in May. -- Nancy B.
Kevin Answers:
Social Security benefits are partially taxable if your "provisional" income exceeds $32,000 on a joint return. Provisional income is your adjusted gross income plus half of your Social Security benefits plus any tax-free income from municipal bonds.
At $525 a week, your wage income would be $27,300 for 52 weeks. To the extent your benefits push that amount over $32,000, then half of the excess (up to 50% of your benefits) would be taxable. Therefore, every extra dollar of income that pushed 50 cents of benefits into the grasp of the IRS would actually mean that extra dollar of income would be taxed at 150% of your top tax bracket. If you are in the 15% bracket, for example, earning a dollar that makes an extra $1.50 taxable would put you in the equivalent of the 22.5% bracket.
You'd still come out ahead earning the extra money, but not as far ahead as if it didn't convert some of your benefits into taxable income.
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