Do I have to pay taxes on the income I receive from Social Security? That is one of the most frequent questions I am asked when giving a Social Security Seminar. The answer to the question is most likely and up to 85% of your benefits may be taxable. Like anything else regarding the US tax code, Social Security taxes are not straight forward. The taxability of Social Security benefits are a function of
· The total amount of Social Security benefits you receive, and
· The amount of your other income

Calculating the Taxable Portion of Social Security benefits
If a taxpayer's modified adjusted gross income for the tax year PLUS one-half of Social Security benefits received during the tax year EXCEED the Base Amount, then the lesser of the following two amounts must be included in gross income and is therefore taxable
1. One half of the Social Security benefits received during the year; or
2. One-half of the amount by which the provisional income exceeds the base amount
The base amount is:
· $32,000 for married individuals filing jointly;
· $0 for married individuals filing separately; and
· $25,000 for everyone else
To further complicate matters, those taxpayers with provisional incomes above an adjusted base amount ($44,000 for married individuals filing jointly; $0 for married individuals filing separately; and $34,000 for unmarried individuals), the following has to be included in your taxable income:
An example may help clarify:
John, a single individual has income of $20,000, plus $10,000 of Social Security benefits. He also received tax-exempt interest of $7,000 during the tax-year
Step 1: Determined modified adjusted gross income
Income: $20,000
Plus Tax-exempt income: $7,000
Modified Adjusted Gross Income: $27,000
Step 2: Determine if modified adjusted gross income plus on half of he Social
Security benefits received exceeds the base amount
Modified Adjusted Gross Income: $27,000
Plus one-half of Social Security benefits: $5,000
Total: $32,000
Minus Base Amount: $25,000
Excess: $7,000
Step 3: Determine what amount must be included in gross income:
One-half of Social Security benefits received: $5,000
OR
One-half of excess amount: $3,500
John must include the excess amount of $3,500 in his taxable income.
Note: The rules are a little more complicated if your provisional income
exceeds a certain amount. Unfortunately, as you may have figured, "more complicated" means most likely owing more taxes.