## help to understand SS benefit tax calculation

### help to understand SS benefit tax calculation

Hi Bogleheads,

I have trouble to understand the SS tax calculation on wiki https://www.bogleheads.org/wiki/Taxatio ... boundaries, particularly the marked row in this table. Can anyone explain how "Taxable SS" and "Adjusted gross income" are calculated on row 3? Thanks!

I have trouble to understand the SS tax calculation on wiki https://www.bogleheads.org/wiki/Taxatio ... boundaries, particularly the marked row in this table. Can anyone explain how "Taxable SS" and "Adjusted gross income" are calculated on row 3? Thanks!

### Re: help to understand SS benefit tax calculation

The link has pertinent information right above the portion that you posted.

The adjusted gross is the sum of the taxable SS and other taxable income.

Taxable income is the adjusted gross less the standard deduction.

The taxable SS of $2975 is what it would be if you had $5950 of SS benefits and had $20950 of other income. (20950-15000)*.5= 2975Single taxpayers:

If you are single and receive $20,000 in Social Security benefits:

None of your benefits are taxable if your other income is less than $15,000.

For every dollar between $15,000 and $24,000, an additional 50 cents becomes taxable.

For every dollar over $24,000, an additional 85 cents becomes taxable, up to a total other income of $38,706, which makes the maximum $17,000 taxable.

The table below assumes that you take the standard deduction ($14,050 for a taxpayer over 65)

The adjusted gross is the sum of the taxable SS and other taxable income.

Taxable income is the adjusted gross less the standard deduction.

### Re: help to understand SS benefit tax calculation

According to the Wiki's formula:

Here it is illustrated for rows 3 and 5 of your table:The relevant income for Social Security taxation includes all items which are normally part of your adjusted gross income, plus tax-exempt interest income, plus 50% of your Social Security benefits. ...

For every $1 of relevant income between the lower and upper bases, 50 cents of your Social Security benefits become taxable, up to 50% of your total benefits. For every $1 of relevant income above the upper bases, 85 cents of your Social Security benefits become taxable, up to a total taxable amount of 85% of your benefits.

Code: Select all

```
Non-SS Ordinary Income 20,950 37,879
Social Security Benefit 20,000 20,000
"Relevant" Income 30,950 47,879 = non SS + 1/2 SS
Excess over $25,000 base 5,950 9,000 (up to $34,000 base)
50% SS taxable 2,975 4,500 (up to max 50% of SS benefit)
Excess over $34,000 base 0 13,879
85% SS taxable 0 11,797
Total SS taxable 2,975 16,297 (up to max 85% of SS benefit)
Adjusted gross income 23,925 54,176
```

### Re: help to understand SS benefit tax calculation

That worksheet is hard to follow, which is why the wiki page exists, rather than just a link to the worksheet. Line 16 of the worksheet tells you to compute 85% of the value on Line 12, and that amount is taxable, but it doesn't explain what the amount on Line 12 is. In order to figure it out, you have to work through the algebra: X=ordinary income, Y=SS income, Line 1=Y, Line 2=Y/2, Line 3=X, ..., Line 12=(X+Y/2)-34000, Line 16=.85*((X+Y/2)-34000).

The reason the highlighted line exists is the tax bracket boundary. For the example single taxpayer, the boundary between the 10% and 12% tax brackets is in the middle of the 50% phase-in range. Every dollar of income on either side of $20950 makes 50 cents of SS taxable, and thus increases your taxable income by $1.50. Since the tax bracket is 10% below taxable income of $9875 and 12% above $9875, the marginal tax rates in both ranges are 1.5 times the tax bracket, which are 15% and 18%.

### Re: help to understand SS benefit tax calculation

Thanks a lot, everyone. A few more questions:

1. For row 3, the SS tax would be = 9874*10% = 1* 12%?

For row 5, the SS tax would be = 9874*10% + (14450 -9874)*12% ?

This is only tax for SS benefit? you will still need to pay regular fed tax for Non-SS income? For example, for row 3, besides the SS tax calculated by above formula, you still need to pay fed tax for the $20950 Non-SS income based on 12% bracket?

2.I thought the final SS tax would be calculated by the "Tax bracket". what's the "Marginal tax rate" here for?

1. For row 3, the SS tax would be = 9874*10% = 1* 12%?

For row 5, the SS tax would be = 9874*10% + (14450 -9874)*12% ?

This is only tax for SS benefit? you will still need to pay regular fed tax for Non-SS income? For example, for row 3, besides the SS tax calculated by above formula, you still need to pay fed tax for the $20950 Non-SS income based on 12% bracket?

2.I thought the final SS tax would be calculated by the "Tax bracket". what's the "Marginal tax rate" here for?

### Re: help to understand SS benefit tax calculation

The SS taxation formula is used to determine how much of your SS is counted in your income for tax purposes. You have a gross income, which includes both ordinary income and the taxable portion of SS. You then subtract the standard deduction to get your taxable income. Thus, on line 3, you have $20,950 of ordinary income, and the SS taxation formula makes $2975 of SS taxable, so your gross income is $23,925. Since you have a $14,050 standard deduction, your taxable income is $9875, and you use the standard tax formula to compute $988 as the tax on that income.Chronos wrote: ↑Sun Sep 06, 2020 4:57 pm Thanks a lot, everyone. A few more questions:

1. For row 3, the SS tax would be = 9874*10% = 1* 12%?

For row 5, the SS tax would be = 9874*10% + (14450 -9874)*12% ?

This is only tax for SS benefit? you will still need to pay regular fed tax for Non-SS income? For example, for row 3, besides the SS tax calculated by above formula, you still need to pay fed tax for the $20950 Non-SS income based on 12% bracket?

2.I thought the final SS tax would be calculated by the "Tax bracket". what's the "Marginal tax rate" here for?

The reason for the "marginal tax rate" column is to show the influence of the SS phase-in on your taxes, which is important in making investment decisions. The marginal tax rate is the percentage of the last dollar of

*income received*that is paid in tax, while the tax bracket is the percentage of the last dollar of

*taxable income on your tax form*that is paid in tax.

Suppose that you have $20,950 in income for the year, and you need to withdraw another $1000. If you withdraw this from a traditional IRA, that creates $1000 of taxable non-SS income. The phase-in means that another $500 of SS becomes taxable, so your taxable income increases by $1500. Since you are in the 12% tax bracket, your tax increases by $180, which is 18% of the ordinary income. You can use this to decide whether it is better to withdraw from a traditional or Roth IRA, or better to do the withdrawal this year or next year (when you may have a different marginal tax rate).

(edited to correct definition; marginal tax rate is tax on last dollar)

Last edited by grabiner on Sun Sep 06, 2020 11:09 pm, edited 1 time in total.

### Re: help to understand SS benefit tax calculation

Excellent explanation, grabiner! I finally understand it. Thank you!!!grabiner wrote: ↑Sun Sep 06, 2020 6:00 pmThe SS taxation formula is used to determine how much of your SS is counted in your income for tax purposes. You have a gross income, which includes both ordinary income and the taxable portion of SS. You then subtract the standard deduction to get your taxable income. Thus, on line 3, you have $20,950 of ordinary income, and the SS taxation formula makes $2975 of SS taxable, so your gross income is $23,925. Since you have a $14,050 standard deduction, your taxable income is $9875, and you use the standard tax formula to compute $988 as the tax on that income.Chronos wrote: ↑Sun Sep 06, 2020 4:57 pm Thanks a lot, everyone. A few more questions:

1. For row 3, the SS tax would be = 9874*10% = 1* 12%?

For row 5, the SS tax would be = 9874*10% + (14450 -9874)*12% ?

This is only tax for SS benefit? you will still need to pay regular fed tax for Non-SS income? For example, for row 3, besides the SS tax calculated by above formula, you still need to pay fed tax for the $20950 Non-SS income based on 12% bracket?

2.I thought the final SS tax would be calculated by the "Tax bracket". what's the "Marginal tax rate" here for?

The reason for the "marginal tax rate" column is to show the influence of the SS phase-in on your taxes, which is important in making investment decisions. The marginal tax rate is the percentage of every dollar ofincome receivedthat is paid in tax, while the tax bracket is the percentage of every dollar oftaxable income on your tax formthat is paid in tax.

Suppose that you have $20,950 in income for the year, and you need to withdraw another $1000. If you withdraw this from a traditional IRA, that creates $1000 of taxable non-SS income. The phase-in means that another $500 of SS becomes taxable, so your taxable income increases by $1500. Since you are in the 12% tax bracket, your tax increases by $180, which is 18% of the ordinary income. You can use this to decide whether it is better to withdraw from a traditional or Roth IRA, or better to do the withdrawal this year or next year (when you may have a different marginal tax rate).

### Re: help to understand SS benefit tax calculation

Above posts have already explained the calculations in details. Should be enough to understand and follow. Here is another article with detailed example just in case it might help anyone who are as confused as I was.

https://www.kitces.com/blog/the-taxatio ... 027.75%25!

https://www.kitces.com/blog/the-taxatio ... 027.75%25!

### Re: help to understand SS benefit tax calculation

grabiner,grabiner wrote: ↑Sun Sep 06, 2020 6:00 pmThe SS taxation formula is used to determine how much of your SS is counted in your income for tax purposes. You have a gross income, which includes both ordinary income and the taxable portion of SS. You then subtract the standard deduction to get your taxable income. Thus, on line 3, you have $20,950 of ordinary income, and the SS taxation formula makes $2975 of SS taxable, so your gross income is $23,925. Since you have a $14,050 standard deduction, your taxable income is $9875, and you use the standard tax formula to compute $988 as the tax on that income.Chronos wrote: ↑Sun Sep 06, 2020 4:57 pm Thanks a lot, everyone. A few more questions:

1. For row 3, the SS tax would be = 9874*10% = 1* 12%?

For row 5, the SS tax would be = 9874*10% + (14450 -9874)*12% ?

This is only tax for SS benefit? you will still need to pay regular fed tax for Non-SS income? For example, for row 3, besides the SS tax calculated by above formula, you still need to pay fed tax for the $20950 Non-SS income based on 12% bracket?

2.I thought the final SS tax would be calculated by the "Tax bracket". what's the "Marginal tax rate" here for?

The reason for the "marginal tax rate" column is to show the influence of the SS phase-in on your taxes, which is important in making investment decisions.The marginal tax rate is the percentage of every dollar of, while the tax bracket is the percentage of every dollar ofincome receivedthat is paid in taxtaxable income on your tax formthat is paid in tax.

Suppose that you have $20,950 in income for the year, and you need to withdraw another $1000. If you withdraw this from a traditional IRA, that creates $1000 of taxable non-SS income. The phase-in means that another $500 of SS becomes taxable, so your taxable income increases by $1500. Since you are in the 12% tax bracket, your tax increases by $180, which is 18% of the ordinary income. You can use this to decide whether it is better to withdraw from a traditional or Roth IRA, or better to do the withdrawal this year or next year (when you may have a different marginal tax rate).

I am hesitant to question this because you are usually spot on with your explanations. But, the above highlighted definition of marginal tax rate does not seem right to me. What you describe sounds more like the effective tax rate. I always thought the marginal tax rate was the percentage of tax paid on

*last dollar*of income. Am i missing something?

Once in a while you get shown the light, in the strangest of places if you look at it right.

### Re: help to understand SS benefit tax calculation

You are correct; both definitions should be "last dollar", not "every dollar", and I corrected the post above.marcopolo wrote: ↑Sun Sep 06, 2020 8:00 pmI am hesitant to question this because you are usually spot on with your explanations. But, the above highlighted definition of marginal tax rate does not seem right to me. What you describe sounds more like the effective tax rate. I always thought the marginal tax rate was the percentage of tax paid ongrabiner wrote: ↑Sun Sep 06, 2020 6:00 pm The reason for the "marginal tax rate" column is to show the influence of the SS phase-in on your taxes, which is important in making investment decisions.The marginal tax rate is the percentage of every dollar of, while the tax bracket is the percentage of every dollar ofincome receivedthat is paid in taxtaxable income on your tax formthat is paid in tax.

Suppose that you have $20,950 in income for the year, and you need to withdraw another $1000. If you withdraw this from a traditional IRA, that creates $1000 of taxable non-SS income. The phase-in means that another $500 of SS becomes taxable, so your taxable income increases by $1500. Since you are in the 12% tax bracket, your tax increases by $180, which is 18% of the ordinary income. You can use this to decide whether it is better to withdraw from a traditional or Roth IRA, or better to do the withdrawal this year or next year (when you may have a different marginal tax rate).last dollarof income. Am i missing something?

### Re: help to understand SS benefit tax calculation

That is not correct. The taxable SS of $2,975 is based on total SS benefits of $20,000 as stated in the example. Here is the calculation:Carl53 wrote: ↑Sun Sep 06, 2020 3:51 pm The link has pertinent information right above the portion that you posted.

The taxiable SS of $2975 is what it would be if you had $5950 of SS benefits and had $20950 of other income. (20950-15000)*.5= 2975Single taxpayers:

If you are single and receive $20,000 in Social Security benefits:

None of your benefits are taxable if your other income is less than $15,000.

For every dollar between $15,000 and $24,000, an additional 50 cents becomes taxable.

For every dollar over $24,000, an additional 85 cents becomes taxable, up to a total other income of $38,706, which makes the maximum $17,000 taxable.

The table below assumes that you take the standard deduction ($14,050 for a taxpayer over 65)

20,950 other income

10,000 half of SS benefits

30,950 provisional income

(25,000) base amount

5,950 excess over base amount

2,975 half of excess over base amount

The amount of SS that is taxable is the lesser of (1) half of SS benefits or (2) half of excess over base amount.

### Re: help to understand SS benefit tax calculation

for $5950 of SS (round to 6K for simplicity) and $20950 of other income (round to 21K for simplicity).........Carl53 wrote: ↑Sun Sep 06, 2020 3:51 pm .........................................................................

The taxable SS of $2975 is what it would be if you had $5950 of SS benefits and had $20950 of other income. (20950-15000)*.5= 2975

The adjusted gross is the sum of the taxable SS and other taxable income.

Taxable income is the adjusted gross less the standard deduction.

Relevant income= other income + 50% SS = 21K + 3K =24K which less than 1st base level of 25K.......so none of

SS is taxable in this case.

### Re: help to understand SS benefit tax calculation

The example (from the Wiki) is for a single taxpayer with a $20,000 SS benefit. To see the tax bracket boundaries & SS threshold crossings for other SS amounts, you can use the Wiki sheet of my Marginal Tax Rates Excel workbook. For instance here it is for a single taxpayer age 65+ with a $40,000 SS benefit.grabiner wrote: ↑Sun Sep 06, 2020 4:45 pmThe reason the highlighted line exists is the tax bracket boundary. For the example single taxpayer, the boundary between the 10% and 12% tax brackets is in the middle of the 50% phase-in range. Every dollar of income on either side of $20950 makes 50 cents of SS taxable, and thus increases your taxable income by $1.50.

Code: Select all

```
Plus 1/2 Versus Versus $14,050 Additional
$40,000 $25,000 $34,000 Total Adjusted Std Ded SS Taxed
Non SS SS Base Base Taxable Gross Taxable Tax for each Marginal
Income Benefit 50% SS 85% SS SS Income Income Bracket $1 Income Tax Rate
------ ------- ------ ------ ------- ------ ------ ------- --------- --------
5,000 25,000 0 0 0 5,000 0 0% 0.50 0.0%
11,033 31,033 3,017 0 3,017 14,050 0 10% 0.50 15.0%
14,000 34,000 4,500 0 4,500 18,500 4,450 10% 0.85 18.5%
16,932 36,932 4,500 2,493 6,993 23,925 9,875 12% 0.85 22.2%
33,284 53,284 4,500 16,391 20,891 54,175 40,125 22% 0.85 40.7%
48,706 68,706 4,500 29,500 34,000 82,706 68,656 22% 0.00 22.0%
```