Social Security Tax Tips

Video Transcript

Tax on Social Security is tax on tax on tax, and this is one of them. The rules for taxation of Social Security are confusing, at best. The taxation came about because the Social Security, is effectively, a government paid annuity, so they came up with a formula that taxes it pretty much as a regular annuity. But there's some special rules involving taxation on Social Security, and that's why we get circumstances where one person with a given income pays tax on Social Security, and their neighbor doesn't. I've seen many cases where combined Social Security, where there's no other income, is well over $40,000, and yet they pay no income tax, because only half of the Social Security is taxed. The basic formula is that half the Social Security is added to all other income, and that portion that exceeds $32,000 for married couples, $25,000 for single, is taxed at ordinary rates. So, we'll see people with ordinary pensions plus Social Security wind up paying tax on their Social Security benefits, and in the worst case, they have reduced Social Security benefits for having the government pensions in the first place. So, it's an interesting dilemma, but, nonetheless, it's part of the law, and reasonable, even though it is confusing. I hope I've alleviated some of the confusion. You can run this over again, and maybe, maybe it will be clear to you. Thank you. Take a look at some of my other clips. I'm Tom Choisnet, enrolled agent.

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