Wiki Error Regarding Social Security Taxation??

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irishguy
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Joined: Fri Jul 26, 2013 11:11 pm

Wiki Error Regarding Social Security Taxation??

Post by irishguy » Wed Apr 29, 2020 12:55 pm

I wanted to understand the marginal tax rates better and how it is calculated, so I consulted the Wiki. Under Taxation of Benefits for married couples, it says: "for every dollar between $12,000 and $24,000 an additional 50 cents becomes taxable". I believe the numbers here should be $32,000 and $44,000 (it may also be wrong for single taxpayers). For married taxpayers, it then says: "for every dollar over $24,000 an additional 85 cents becomes taxable up to a total income of $56,941 which makes the maximum $34,000 taxable. I believe the $24,000 should be $44,000 but I'm not sure about the $56,941 and $34,000 amounts needing to be changed. Possibly the graphs and charts also need to be revised, I'm not totally certain. I consulted the social security and other websites so I believe what I have pointed out here is correct and should be changed.

Silk McCue
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Joined: Thu Feb 25, 2016 7:11 pm

Re: Wiki Error Regarding Social Security Taxation??

Post by Silk McCue » Wed Apr 29, 2020 1:14 pm

The numbers in the tables are correct. Not much chance that this long established Wiki would be wrong. I think you are failing to include the presumed amount of SS income which is $20k and $40k respectively Single/MFJ. The income #'s are built on to of that. The assumption is that the recipient(s) is/are 65 and getting additional deduction.

Regardless, I used the calculator below to verify the numbers and they were spot on.

https://www.mortgagecalculator.org/calc ... ulator.php

Cheers

Chip
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Joined: Wed Feb 21, 2007 4:57 am

Re: Wiki Error Regarding Social Security Taxation??

Post by Chip » Wed Apr 29, 2020 2:29 pm

irishguy wrote:
Wed Apr 29, 2020 12:55 pm
I believe the $24,000 should be $44,000 but I'm not sure about the $56,941 and $34,000 amounts needing to be changed.
Adding a tiny bit to Silk's answer, from the wiki (my emphasis):

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. (Historically, the 50% represents the fact that half of your Social Security contributions were made by your employer and thus not taxed.)[4]

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#Cruncher
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Re: Wiki Error Regarding Social Security Taxation??

Post by #Cruncher » Wed Apr 29, 2020 2:35 pm

As Silk McCue says, the Wiki is correct, irishguy. Following is the section that you're referring to. I've italicized what you quoted. But I have also underlined "other income" in the previous line. Just mentally add "of other income" to "For every dollar" in your two quotes and they should be clear. $12,000 and $24,000 are the amounts of other income that cause the total of other income plus one-half of SS to reach the $32,000 and $44,000 SS thresholds.
Married taxpayers:
If you are a married couple and receive $40,000 in Social Security benefits:
  • None of your benefits are taxable if your other income is less than $12,000.
  • For every dollar between $12,000 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 $56,941, which makes the maximum $34,000 taxable.
Here is the case where other income is $56,941, the amount that causes the maximum 85% of SS to be taxable.

Code: Select all

Social security benefit    40,000   
Other income               56,941
1/2 SS + other income      76,941

50% taxable                 6,000 = 50% * (44000 - 32000)
85% taxable                28,000 = 85% * (76941 - 44000)
                           ------
Total SS taxable           34,000 = 85% * 40000

Topic Author
irishguy
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Joined: Fri Jul 26, 2013 11:11 pm

Re: Wiki Error Regarding Social Security Taxation??

Post by irishguy » Wed Apr 29, 2020 4:14 pm

#Cruncher wrote:
Wed Apr 29, 2020 2:35 pm
As Silk McCue says, the Wiki is correct, irishguy. Following is the section that you're referring to. I've italicized what you quoted. But I have also underlined "other income" in the previous line. Just mentally add "of other income" to "For every dollar" in your two quotes and they should be clear. $12,000 and $24,000 are the amounts of other income that cause the total of other income plus one-half of SS to reach the $32,000 and $44,000 SS thresholds.
Oh, that's what I was missing! Thanks to you and others for the clarification. It was hard for me to believe the Wiki was wrong!

Since you seem quite knowledgeable about this I wonder if you could help me further? I know that the marginal rate is defined as the tax on the last dollar of income. But I don't know how to get there even after looking at the Wiki. The Wiki says that many retirees in the 12% tax bracket are actually 22.2% marginal tax rate. Can you help me understand how they come up with 22.2%? I assume that retired people move up in marginal rate because of how social security is taxed and possibly also with the need to take RMD's? And I suppose if a Roth conversion pushes your marginal rate up to a higher tax bracket it may not be as attractive for some people depending on their tax situation (this year for example when RMD's are waived).

Any help with understanding some of this would be appreciated!

Silk McCue
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Joined: Thu Feb 25, 2016 7:11 pm

Re: Wiki Error Regarding Social Security Taxation??

Post by Silk McCue » Wed Apr 29, 2020 4:47 pm

Once you are in the 12% bracket and a portion of SS is being taxed .85 on the dollar you get the 22.2% marginal rate. Here's how, the next $1 of other income causes an additional .85c of SS to be taxed. 12% * 1.85 is 22.2% - the marginal rate on the next dollar of other income.

Cheers

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