quick double check that 85% of my SS will be subject to tax

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jmk
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quick double check that 85% of my SS will be subject to tax

Post by jmk » Sun Feb 03, 2019 11:38 pm

Just double checking back of envelope calculation, trying to see if there's any real possibility that less than 85% of my SS income will be subject to tax.

I'll get a $12,800 pension, not inflation adjusted. PV of our social security at age 70 is $38,000.
Half of SS=FV(2%,15,,19000,1)= $25,571.
So in 2034 at age 70, we start with 1/2 SS + pension = $25,571 + 12800 = $38,271.
In 2044 at age 80, 1/2 SS + pension = $31,172 + 12800 = 43,972.

So since the MFJ SS taxation brackets are not inflation adjusted, that basically means we'll have 85% of our SS income taxed?

UPDATE - My whole understanding of how SS is taxed was incorrect. Leaving up for education of others.
Last edited by jmk on Tue Feb 05, 2019 5:31 pm, edited 3 times in total.

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J G Bankerton
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Re: quick double check that my SS will be taxed at 85%

Post by J G Bankerton » Sun Feb 03, 2019 11:46 pm

It is complicated but SS tax at "up to" 50% or "up to" 85%. I graduated from the 50% to the 85% and paid tax on 59.52% of my SS. There is nowhere to hide when it comes to additional SS tax as even tax free income is add in to compute SS tax.

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jmk
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Re: quick double check that my SS will be taxed at 85%

Post by jmk » Mon Feb 04, 2019 12:13 am

.....
Last edited by jmk on Mon Feb 04, 2019 10:46 am, edited 1 time in total.

kaneohe
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Re: quick double check that my SS will be taxed at 85%

Post by kaneohe » Mon Feb 04, 2019 12:25 am

https://taxmap.irs.gov/taxmap/pubs/p915 ... 1000263043

If MFJ the key numbers are 32K and 44K........

Take half of SS + other income= 38K or 44K = P

1)if P= 38K, P - 32K = 6K so half of the 6K =3K of your 51K SS is taxed
2)if P= 44K, P- 32K = 12K so half of the 12K = 6K of your 62K SS is taxed

You can use a tax calculator to figure taxable part of SS
https://www.mortgagecalculator.org/calc ... ulator.php

Taxation of SS is graded.......there are no step functions here.

3) once P goes over 44K, any excess over 44K , 85% of that excess is taxable in addition to the 50% of the amount 44K-32K which are the 2 key numbers (=6K). The maximum that will be taxable is 85% of SS.

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Re: quick double check that my SS will be taxed at 85%

Post by kaneohe » Mon Feb 04, 2019 12:42 am

"quick double check that my SS will be taxed at 85%"
Just a FYI: your SS will not be taxed at 85%.........though 85% of your SS may be taxed
You probably know that so the language used is misleading.

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Eagle33
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Re: quick double check that my SS will be taxed at 85%

Post by Eagle33 » Mon Feb 04, 2019 1:05 am

Refer to wiki topic Taxation of Social Security benefits for details.
https://www.bogleheads.org/wiki/Taxatio ... y_benefits
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Re: quick double check that my SS will be taxed at 85%

Post by The Wizard » Mon Feb 04, 2019 3:44 am

Yes, the fun thing about those provisional income brackets is that they aren't indexed to Inflation. So as time goes on, increasing numbers of people will have 85% of their SS taxed.

Another fun thing are the transitional "humps" where additional other income causes more of your SS to be taxed at a higher rate.
This results in obnoxious marginal tax brackets.

And the final fun thing is that taxes paid to the IRS on SS income actually get funnelled back to the SS Trust Fund, thus ensuring its financial integrity forever...
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Re: quick double check that my SS will be taxed at 85%

Post by Wiggums » Mon Feb 04, 2019 5:46 am

The Wizard wrote:
Mon Feb 04, 2019 3:44 am

And the final fun thing is that taxes paid to the IRS on SS income actually get funnelled back to the SS Trust Fund, thus ensuring its financial integrity forever...
At least the tax is going to a good cause. I hope this is true...

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Re: quick double check that my SS will be taxed at 85%

Post by southerndoc » Mon Feb 04, 2019 5:50 am

kaneohe wrote:
Mon Feb 04, 2019 12:42 am
"quick double check that my SS will be taxed at 85%"
Just a FYI: your SS will not be taxed at 85%.........though 85% of your SS may be taxed
You probably know that so the language used is misleading.
I thought this thread was saying there was an 85% tax rate on social security benefits. Thanks for clarifying. 85% of benefits are taxable, and I assume it would be at whatever tax bracket you fall into when you factor in pensions, IRA's, 401(k) distributions, etc.?

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Re: quick double check that my SS will be taxed at 85%

Post by The Wizard » Mon Feb 04, 2019 8:55 am

southerndoc wrote:
Mon Feb 04, 2019 5:50 am
kaneohe wrote:
Mon Feb 04, 2019 12:42 am
"quick double check that my SS will be taxed at 85%"
Just a FYI: your SS will not be taxed at 85%.........though 85% of your SS may be taxed
You probably know that so the language used is misleading.
I thought this thread was saying there was an 85% tax rate on social security benefits. Thanks for clarifying. 85% of benefits are taxable, and I assume it would be at whatever tax bracket you fall into when you factor in pensions, IRA's, 401(k) distributions, etc.?
Well, sort of.
Filing single, the 22% tax bracket starts at $38,701 for 2018 and goes up beyond $80k.
So if you had Taxable Income of $42,700 after deductions, then $4000 of income is taxed at 22%, the rest at 12% or less.
So can't really say your SS is taxed at 22% here...
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Re: quick double check that my SS will be taxed at 85%

Post by kaneohe » Mon Feb 04, 2019 9:26 am

southerndoc wrote:
Mon Feb 04, 2019 5:50 am
kaneohe wrote:
Mon Feb 04, 2019 12:42 am
"quick double check that my SS will be taxed at 85%"
Just a FYI: your SS will not be taxed at 85%.........though 85% of your SS may be taxed
You probably know that so the language used is misleading.
I thought this thread was saying there was an 85% tax rate on social security benefits. Thanks for clarifying. 85% of benefits are taxable, and I assume it would be at whatever tax bracket you fall into when you factor in pensions, IRA's, 401(k) distributions, etc.?
My language above also was misleading..........you focused on the 85% while I meant the focus on the may.
It is possible for 0% of SS to be taxed but it is possible for 85% of SS to be taxed also depending on your other income. 85% is the max.

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Re: quick double check that my SS will be taxed at 85%

Post by Beehave » Mon Feb 04, 2019 9:51 am

southerndoc wrote:
Mon Feb 04, 2019 5:50 am
kaneohe wrote:
Mon Feb 04, 2019 12:42 am
"quick double check that my SS will be taxed at 85%"
Just a FYI: your SS will not be taxed at 85%.........though 85% of your SS may be taxed
You probably know that so the language used is misleading.
I thought this thread was saying there was an 85% tax rate on social security benefits. Thanks for clarifying. 85% of benefits are taxable, and I assume it would be at whatever tax bracket you fall into when you factor in pensions, IRA's, 401(k) distributions, etc.?
There's an infomercial for a retirement-specializing consulting firm that runs every Sunday in my area in which they obfuscate on this to scare people into coming in for services.

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Re: quick double check that my SS will be taxed at 85%

Post by ResearchMed » Mon Feb 04, 2019 9:53 am

kaneohe wrote:
Mon Feb 04, 2019 9:26 am
southerndoc wrote:
Mon Feb 04, 2019 5:50 am
kaneohe wrote:
Mon Feb 04, 2019 12:42 am
"quick double check that my SS will be taxed at 85%"
Just a FYI: your SS will not be taxed at 85%.........though 85% of your SS may be taxed
You probably know that so the language used is misleading.
I thought this thread was saying there was an 85% tax rate on social security benefits. Thanks for clarifying. 85% of benefits are taxable, and I assume it would be at whatever tax bracket you fall into when you factor in pensions, IRA's, 401(k) distributions, etc.?
My language above also was misleading..........you focused on the 85% while I meant the focus on the may.
It is possible for 0% of SS to be taxed but it is possible for 85% of SS to be taxed also depending on your other income. 85% is the max.
The difference is, well, different from what you are writing. It's not about "what percentage".

The problem with the wording is that SS is NEVER taxed "at 85%". No one currently has that high a tax bracket.

It is "up to 85% of SS is taxed AT ALL", and the bracket(s) depends upon the total amount of non-SS plus SS income (single or joint).

RM
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Re: quick double check that my SS will be taxed at 85%

Post by kaneohe » Mon Feb 04, 2019 11:45 am

ResearchMed wrote:
Mon Feb 04, 2019 9:53 am
kaneohe wrote:
Mon Feb 04, 2019 9:26 am
southerndoc wrote:
Mon Feb 04, 2019 5:50 am
kaneohe wrote:
Mon Feb 04, 2019 12:42 am
"quick double check that my SS will be taxed at 85%"
Just a FYI: 1)your SS will not be taxed at 85%.........though A)85% of your SS may be taxed
You probably know that so the language used is misleading.
I thought this thread was saying there was an 85% tax rate on social security benefits. Thanks for clarifying. 85% of benefits are taxable, and 2)I assume it would be at whatever tax bracket you fall into when you factor in pensions, IRA's, 401(k) distributions, etc.?
My language above also was misleading..........you focused on the 85% while I meant the focus on the may.
It is possible for 0% of SS to be taxed but B) it is possible for 85% of SS to be taxed also depending on your other income. 85% is the max.
The difference is, well, different from what you are writing. It's not about "what percentage".

The problem with the wording is that SS is NEVER taxed "at 85%". No one currently has that high a tax bracket.

It is C)"up to 85% of SS is taxed AT ALL", and 3) the bracket(s) depends upon the total amount of non-SS plus SS income (single or joint).

RM
1) 2) 3) above and A) B) C)

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Re: quick double check that my SS will be taxed at 85%

Post by J G Bankerton » Mon Feb 04, 2019 1:10 pm

The Wizard wrote:
Mon Feb 04, 2019 8:55 am
So if you had Taxable Income of $42,700 after deductions, then $4000 of income is taxed at 22%, the rest at 12% or less.
So can't really say your SS is taxed at 22% here...
The portion of SS that is taxable is tax at whatever bracket one is in; it is added in last. The last dollar earned at 22% could actually be taxed at 30% depending on how much extra SS tax it triggers.

Its brutal out there.

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Re: quick double check that my SS will be taxed at 85%

Post by The Wizard » Mon Feb 04, 2019 2:01 pm

J G Bankerton wrote:
Mon Feb 04, 2019 1:10 pm
The Wizard wrote:
Mon Feb 04, 2019 8:55 am
So if you had Taxable Income of $42,700 after deductions, then $4000 of income is taxed at 22%, the rest at 12% or less.
So can't really say your SS is taxed at 22% here...
The portion of SS that is taxable is tax at whatever bracket one is in; it is added in last. The last dollar earned at 22% could actually be taxed at 30% depending on how much extra SS tax it triggers.

Its brutal out there.
While I agree that there's a Hump Zone for marginal tax rates as one gets additional other income and transitions through the 50% and 85% taxable percentages, I disagree that your percentage of SS is "added in last" for taxation purposes.

I'm well beyond the SS transition zones so 85% of mine will always be taxed.
If anything is "added in last" for taxation purposes, it's certainly not lifetime income streams like SS, pensions, and Immediate annuities. Optional income in retirement, such as part-time work and Roth conversions are more properly thought of as being taxed at your full marginal rate...
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Re: quick double check that 85% of my SS will be subject to tax

Post by MathWizard » Mon Feb 04, 2019 2:14 pm

I'm not sure where you get the estimate for SS at 70.

If you are getting it from a SS statement, be aware that the estimates assume that you work to that age
earning what you do now until then, which makes that figure bigger.

Assuming that you work to FRA, you could use the age FRA estimate, and used deferred credits of 8 % per year
to increase FRA to an age 70 benefit from your working just until FRA, and not claiming until age 70.

This may make your SS benefit smaller.

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jmk
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Re: quick double check that my SS will be taxed at 85%

Post by jmk » Tue Feb 05, 2019 9:53 am

kaneohe wrote:
Mon Feb 04, 2019 12:25 am
https://taxmap.irs.gov/taxmap/pubs/p915 ... 1000263043
If MFJ the key numbers are 32K and 44K........
Take half of SS + other income= 38K or 44K = P
1)if P= 38K, P - 32K = 6K so half of the 6K =3K of your 51K SS is taxed
2)if P= 44K, P- 32K = 12K so half of the 12K = 6K of your 62K SS is taxed
You can use a tax calculator to figure taxable part of SS
https://www.mortgagecalculator.org/calc ... ulator.php
Taxation of SS is graded.......there are no step functions here.
3) once P goes over 44K, any excess over 44K , 85% of that excess is taxable in addition to the 50% of the amount 44K-32K which are the 2 key numbers (=6K). The maximum that will be taxable is 85% of SS.
+1
Eagle33 wrote:
Mon Feb 04, 2019 1:05 am
Refer to wiki topic Taxation of Social Security benefits for details.
https://www.bogleheads.org/wiki/Taxatio ... y_benefits
+1

I had it all wrong, thanks for everyone's patience.

Should I delete the thread or leave it for education of others?

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Re: quick double check that 85% of my SS will be subject to tax

Post by Nowizard » Tue Feb 05, 2019 2:17 pm

Unless I am mistaken, the same thing applies to increased Medicare and Part B and D, high earners in the sense that the brackets that determine the amount of the increase are not indexed to inflation. The increases are quite substantial.

Tim

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Re: quick double check that my SS will be taxed at 85%

Post by Silk McCue » Tue Feb 05, 2019 2:25 pm

jmk wrote:
Tue Feb 05, 2019 9:53 am
Should I delete the thread or leave it for education of others?
Please don't. You can edit your first post if you want leaving everything in tact and make the first line something like.

UPDATE - My calculations were wrong. Thanks to those that set me straight.'

You can't actually delete a thread but some people go back and delete all the initial information rendering the post worthless pretty much for future reference.

Cheers

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Re: quick double check that my SS will be taxed at 85%

Post by sawdust60 » Tue Feb 05, 2019 3:58 pm

Eagle33 wrote:
Mon Feb 04, 2019 1:05 am
Refer to wiki topic Taxation of Social Security benefits for details.
https://www.bogleheads.org/wiki/Taxatio ... y_benefits
It can help to put the numbers into the format like the wiki. And this is just the impact on marginal rates, without considering qualified dividends/LTCG, IRMAA, etc. Interesting to see how marginal rates are different with high levels of SS. And this example uses the higher SS, without adjusting tax brackets, etc.
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Re: quick double check that 85% of my SS will be subject to tax

Post by JBTX » Tue Feb 05, 2019 7:33 pm

If OP has any traditional IRAS or 401ks RMDS kick in at 70 and will effect the calculation further. Any capital gains on taxable savings could lead to stacking issues.

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Re: quick double check that my SS will be taxed at 85%

Post by J G Bankerton » Wed Feb 06, 2019 1:10 pm

The Wizard wrote:
Mon Feb 04, 2019 2:01 pm
J G Bankerton wrote:
Mon Feb 04, 2019 1:10 pm
The Wizard wrote:
Mon Feb 04, 2019 8:55 am
So if you had Taxable Income of $42,700 after deductions, then $4000 of income is taxed at 22%, the rest at 12% or less.
So can't really say your SS is taxed at 22% here...
The portion of SS that is taxable is tax at whatever bracket one is in; it is added in last. The last dollar earned at 22% could actually be taxed at 30% depending on how much extra SS tax it triggers.

Its brutal out there.
While I agree that there's a Hump Zone for marginal tax rates as one gets additional other income and transitions through the 50% and 85% taxable percentages, I disagree that your percentage of SS is "added in last" for taxation purposes.

I'm well beyond the SS transition zones so 85% of mine will always be taxed.
If anything is "added in last" for taxation purposes, it's certainly not lifetime income streams like SS, pensions, and Immediate annuities. Optional income in retirement, such as part-time work and Roth conversions are more properly thought of as being taxed at your full marginal rate...
The amount of my SS that is taxed is taxed at the highest % as is all income in a bracket.

I did a what if in TurboTax and if I made $100 less in regular income I would save $51 in taxes. Very odd being taxed at 51%. I haven't looked into the details yet because it hurts my head. :?

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Re: quick double check that my SS will be taxed at 85%

Post by The Wizard » Wed Feb 06, 2019 1:34 pm

J G Bankerton wrote:
Wed Feb 06, 2019 1:10 pm

...I did a what if in TurboTax and if I made $100 less in regular income I would save $51 in taxes. Very odd being taxed at 51%. I haven't looked into the details yet because it hurts my head. :?
Being in the Hump Zone is nasty.
Sorry about that...
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Re: quick double check that my SS will be taxed at 85%

Post by J G Bankerton » Wed Feb 06, 2019 1:50 pm

The Wizard wrote:
Wed Feb 06, 2019 1:34 pm
Being in the Hump Zone is nasty.
Sorry about that...
Hay what day is it asked the camel?

So I'm in the 51% bracket. I'm not proud as only the little people pay taxes. I'm doing this wrong. :annoyed

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Re: quick double check that my SS will be taxed at 85%

Post by vineviz » Wed Feb 06, 2019 1:57 pm

J G Bankerton wrote:
Wed Feb 06, 2019 1:10 pm
The Wizard wrote:
Mon Feb 04, 2019 2:01 pm
If anything is "added in last" for taxation purposes, it's certainly not lifetime income streams like SS, pensions, and Immediate annuities. Optional income in retirement, such as part-time work and Roth conversions are more properly thought of as being taxed at your full marginal rate...
The amount of my SS that is taxed is taxed at the highest % as is all income in a bracket.

I did a what if in TurboTax and if I made $100 less in regular income I would save $51 in taxes. Very odd being taxed at 51%. I haven't looked into the details yet because it hurts my head. :?
The salient point is that different kinds of income don't have discrete tax rates: all taxable income is put into the same box, and the tax rate depends on how big the box ends up being.

Reducing your taxable income by $100 will have the same effect regardless of whether your Social Security check drops by $100 or you withdraw $100 less from a Traditional IRA or you make $100 less in wages.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: quick double check that my SS will be taxed at 85%

Post by Silk McCue » Wed Feb 06, 2019 2:05 pm

vineviz wrote:
Wed Feb 06, 2019 1:57 pm
The salient point is that different kinds of income don't have discrete tax rates: all taxable income is put into the same box, and the tax rate depends on how big the box ends up being.

Reducing your taxable income by $100 will have the same effect regardless of whether your Social Security check drops by $100 or you withdraw $100 less from a Traditional IRA or you make $100 less in wages.
Which is why for many, reducing Tax deferred balances while in a lower tax bracket via Roth conversions, placing excess in tax efficient Taxable account, or spending will reduce the size of RMDs resulting in fewer SS dollars being taxed resulting in Hump rates if the full 85% isn’t consumed by the remainder of the income.

Cheers

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Re: quick double check that my SS will be taxed at 85%

Post by J G Bankerton » Wed Feb 06, 2019 2:21 pm

vineviz wrote:
Wed Feb 06, 2019 1:57 pm
The salient point is that different kinds of income don't have discrete tax rates:
SS is taxed differently. That is how I wound up is a 51% tax bracket. I'm writing my congressman about that.

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Re: quick double check that my SS will be taxed at 85%

Post by Silk McCue » Wed Feb 06, 2019 2:27 pm

J G Bankerton wrote:
Wed Feb 06, 2019 2:21 pm
vineviz wrote:
Wed Feb 06, 2019 1:57 pm
The salient point is that different kinds of income don't have discrete tax rates:
SS is taxed differently. That is how I wound up is a 51% tax bracket. I'm writing my congressman about that.
Good luck with that. No less than 15% of your SS is untaxed and for many it is 100% untaxed. I wish that they didn’t have to tax it but that ship sailed in the 70s.

Cheers

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Re: quick double check that my SS will be taxed at 85%

Post by The Wizard » Wed Feb 06, 2019 2:33 pm

J G Bankerton wrote:
Wed Feb 06, 2019 1:50 pm
The Wizard wrote:
Wed Feb 06, 2019 1:34 pm
Being in the Hump Zone is nasty.
Sorry about that...
Hay what day is it asked the camel?

So I'm in the 51% bracket. I'm not proud as only the little people pay taxes. I'm doing this wrong. :annoyed
I'm not actually sure what standard advice is for folks in the Hump Zone.
In some cases, doing Roth conversions to get AGI up a ways might help.
In some cases, delaying SS until age 70 might HAVE helped.

For sure, once 85% of your SS is being taxed, there's no more Hump Zone.
But some folks try to AVOID getting to that point.
So I dunno...
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Re: quick double check that my SS will be taxed at 85%

Post by vineviz » Wed Feb 06, 2019 2:36 pm

J G Bankerton wrote:
Wed Feb 06, 2019 2:21 pm
vineviz wrote:
Wed Feb 06, 2019 1:57 pm
The salient point is that different kinds of income don't have discrete tax rates:
SS is taxed differently. That is how I wound up is a 51% tax bracket. I'm writing my congressman about that.
No, it’s actually not.

Only a portion of Social Security income is taxable, but that portion is taxed like all other earned income.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: quick double check that my SS will be taxed at 85%

Post by Epsilon Delta » Wed Feb 06, 2019 2:43 pm

vineviz wrote:
Wed Feb 06, 2019 1:57 pm
Reducing your taxable income by $100 will have the same effect regardless of whether your Social Security check drops by $100 or you withdraw $100 less from a Traditional IRA or you make $100 less in wages.
If you are in the 50% phase in for SS taxation $100 less of wages decreases taxable income by $150. Decreasing SS by $100 decreases taxable income by $125$25. There will be a corresponding difference in tax, subject to the tax table buckets and rounding.

In general different types of income can be taxed at different marginal rates.
Last edited by Epsilon Delta on Wed Feb 06, 2019 5:22 pm, edited 1 time in total.

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vineviz
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Re: quick double check that my SS will be taxed at 85%

Post by vineviz » Wed Feb 06, 2019 3:06 pm

Epsilon Delta wrote:
Wed Feb 06, 2019 2:43 pm
vineviz wrote:
Wed Feb 06, 2019 1:57 pm
Reducing your taxable income by $100 will have the same effect regardless of whether your Social Security check drops by $100 or you withdraw $100 less from a Traditional IRA or you make $100 less in wages.
If you are in the 50% phase in for SS taxation $100 less of wages decreases taxable income by $150. Decreasing SS by $100 decreases taxable income by $125. There will be a corresponding difference in tax, subject to the tax table buckets and rounding.

In general different types of income can be taxed at different marginal rates.
I think you're confusing yourself, but it's not complicated: $100 less in taxable income will result in the same reduction in taxes, not matter what the source of the income.

If your marginal tax rate is 22%, reducing taxable income by $100 will reduce your federal tax by $22.
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Re: quick double check that my SS will be taxed at 85%

Post by Alan S. » Wed Feb 06, 2019 3:42 pm

vineviz wrote:
Wed Feb 06, 2019 3:06 pm
Epsilon Delta wrote:
Wed Feb 06, 2019 2:43 pm
vineviz wrote:
Wed Feb 06, 2019 1:57 pm
Reducing your taxable income by $100 will have the same effect regardless of whether your Social Security check drops by $100 or you withdraw $100 less from a Traditional IRA or you make $100 less in wages.
If you are in the 50% phase in for SS taxation $100 less of wages decreases taxable income by $150. Decreasing SS by $100 decreases taxable income by $125. There will be a corresponding difference in tax, subject to the tax table buckets and rounding.

In general different types of income can be taxed at different marginal rates.
I think you're confusing yourself, but it's not complicated: $100 less in taxable income will result in the same reduction in taxes, not matter what the source of the income.

If your marginal tax rate is 22%, reducing taxable income by $100 will reduce your federal tax by $22.
No, Epsilon is correct. In the SS phase in range, $100 in AGI reduction will reduce the amount of SS included in AGI by another $50, for a total reduction of $150 in AGI.

However, it does sound better for medium to higher income retirees to just look at SS income as a taxable pension with 15% investment in the contract. For those with lower AGIs, the taxable pension (SS income) will be phased out.

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Re: quick double check that my SS will be taxed at 85%

Post by The Wizard » Wed Feb 06, 2019 4:06 pm

Alan S. wrote:
Wed Feb 06, 2019 3:42 pm

...However, it does sound better for medium to higher income retirees to just look at SS income as a taxable pension with 15% investment in the contract. For those with lower AGIs, the taxable pension (SS income) will be phased out.
I need to think about this concept for a few minutes...
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Silk McCue
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Re: quick double check that my SS will be taxed at 85%

Post by Silk McCue » Wed Feb 06, 2019 4:26 pm

The Wizard wrote:
Wed Feb 06, 2019 2:33 pm
J G Bankerton wrote:
Wed Feb 06, 2019 1:50 pm
The Wizard wrote:
Wed Feb 06, 2019 1:34 pm
Being in the Hump Zone is nasty.
Sorry about that...
Hay what day is it asked the camel?

So I'm in the 51% bracket. I'm not proud as only the little people pay taxes. I'm doing this wrong. :annoyed
I'm not actually sure what standard advice is for folks in the Hump Zone.
In some cases, doing Roth conversions to get AGI up a ways might help.
In some cases, delaying SS until age 70 might HAVE helped.

For sure, once 85% of your SS is being taxed, there's no more Hump Zone.
But some folks try to AVOID getting to that point.
So I dunno...
If you pass all the way through the Hump paying on the full 85% of your SS benefit and drop back to your previous non Hump bracket you should consider withdrawing funds from tax deferred all the way to the top of that bracket as it is bargain. Ideally you would actually use this additional amount as a Roth Conversion stopping the tax gremlin on those funds. It may result in having RMDS not push so far into the Hump the following year. If it doesn't just rinse and repeat until it does.

Cheers
Last edited by Silk McCue on Wed Feb 06, 2019 4:36 pm, edited 1 time in total.

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#Cruncher
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Re: quick double check that 85% of my SS will be subject to tax

Post by #Cruncher » Wed Feb 06, 2019 4:31 pm

jmk wrote:
Sun Feb 03, 2019 11:38 pm
...trying to see if there's any real possibility that less than 85% of my SS income will be subject to tax. I'll get a $12,800 pension, not inflation adjusted. PV of our social security at age 70 is $38,000.
Half of SS=FV(2%,15,,19000,1)= $25,571.
So in 2034 at age 70, we start with 1/2 SS + pension = $25,571 + 12800 = $38,271.
In 2044 at age 80, 1/2 SS + pension = $31,172 + 12800 = 43,972.
...
UPDATE - My whole understanding of how SS is taxed was incorrect. Leaving up for education of others.
You were halfway there, jmk! You properly calculated what the BH Wiki article calls "Relevant Income". (Except for a typo: $38,271 s/b $38,371.) All you need to do now is calculate -- based on the Relevant Income -- how much of SS is taxable. This is shown in the following table:

Code: Select all

Row  Col A           Col B   Col C   Col D  Col E   Col F  Col G
  1  Inflation        2.0%
  2  Base year        2019
  3  Base SS Ben    38,000
  4  Other income   12,800
  5  50% threshold  32,000
  6  85% threshold  44,000
                          Relevant   ---- Taxable SS ----   Pct
     Year           SS Ben  Income    50%    85%    Total  of SS

Code: Select all

  9  2034           51,143  38,371   3,186          3,186   6.2%
 10  2035           52,166  38,883   3,441          3,441   6.6%
 11  2036           53,209  39,405   3,702          3,702   7.0%
 12  2037           54,273  39,937   3,968          3,968   7.3%
 13  2038           55,359  40,479   4,240          4,240   7.7%
 14  2039           56,466  41,033   4,517          4,517   8.0%
 15  2040           57,595  41,598   4,799          4,799   8.3%
 16  2041           58,747  42,174   5,087          5,087   8.7%
 17  2042           59,922  42,761   5,381          5,381   9.0%
 18  2043           61,121  43,360   5,680          5,680   9.3%
 19  2044           62,343  43,972   5,986          5,986   9.6%
 20  2045           63,590  44,595   6,000    506   6,506  10.2%
 21  2046           64,862  45,231   6,000  1,046   7,046  10.9%
 22  2047           66,159  45,879   6,000  1,598   7,598  11.5%
 23  2048           67,482  46,541   6,000  2,160   8,160  12.1%
 24  2049           68,832  47,216   6,000  2,733   8,733  12.7%
 25  2050           70,208  47,904   6,000  3,319   9,319  13.3%
 26  2051           71,613  48,606   6,000  3,915   9,915  13.8%
 27  2052           73,045  49,322   6,000  4,524  10,524  14.4%
 28  2053           74,506  50,053   6,000  5,145  11,145  15.0%
 29  2054           75,996  50,798   6,000  5,778  11,778  15.5%
Even after collecting SS for 20 years only 15.5% of your SS benefit will be taxable. The new Years sheet in my Marginal Tax Rates spreadsheet does the same calculation except in constant dollars. Since your pension is not inflation-indexed you need to reduce it by the inflation rate to be in constant dollars (as the sheet does for the SS thresholds). When this is done the sheet shows the same 15.5% of SS being taxed in 2054. The sheet also shows no federal income tax due 2034 - 2054 assuming current tax law continues.

Epsilon Delta wrote:
Wed Feb 06, 2019 2:43 pm
If you are in the 50% phase in for SS taxation $100 less of wages decreases taxable income by $150. Decreasing SS by $100 decreases taxable income by $125.
The first statement is correct, Epsilon; but not the second. If "Relevant Income" lies between the 50% and 85% SS thresholds, a $100 reduction in SS benefits (while all other income is unchanged) would reduce taxable income by only $25, not $125. This is because Relevant Income would fall $50 and 50% of that is $25. You can see this on the lower graph on the Main sheet of my Marginal Tax Rates spreadsheet.

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vineviz
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Re: quick double check that my SS will be taxed at 85%

Post by vineviz » Wed Feb 06, 2019 4:56 pm

Alan S. wrote:
Wed Feb 06, 2019 3:42 pm
No, Epsilon is correct. In the SS phase in range, $100 in AGI reduction will reduce the amount of SS included in AGI by another $50, for a total reduction of $150 in AGI.
Yeah, that's not really how the calculations work.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Silk McCue
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Re: quick double check that my SS will be taxed at 85%

Post by Silk McCue » Wed Feb 06, 2019 5:05 pm

vineviz wrote:
Wed Feb 06, 2019 4:56 pm
Alan S. wrote:
Wed Feb 06, 2019 3:42 pm
No, Epsilon is correct. In the SS phase in range, $100 in AGI reduction will reduce the amount of SS included in AGI by another $50, for a total reduction of $150 in AGI.
Yeah, that's not really how the calculations work.
Yes it is. You might want to slow down as it may actually be you that has a misunderstanding of how one extra dollar of say RMD causes 50c of an additional dollar of SS in the phase in range to become taxable. So one dollar of additional taxable income causes 1.50 to become taxable.

Cheers

The Wizard
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Re: quick double check that my SS will be taxed at 85%

Post by The Wizard » Wed Feb 06, 2019 5:08 pm

Silk McCue wrote:
Wed Feb 06, 2019 5:05 pm
vineviz wrote:
Wed Feb 06, 2019 4:56 pm
Alan S. wrote:
Wed Feb 06, 2019 3:42 pm
No, Epsilon is correct. In the SS phase in range, $100 in AGI reduction will reduce the amount of SS included in AGI by another $50, for a total reduction of $150 in AGI.
Yeah, that's not really how the calculations work.
Yes it is. You might want to slow down as it may actually be you that has a misunderstanding of how one extra dollar of say RMD causes 50c of an additional dollar of SS in the phase in range to become taxable. So one dollar of additional taxable income causes 1.50 to become taxable.

Cheers
Hence --------------------> The Hump...
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Epsilon Delta
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Re: quick double check that 85% of my SS will be subject to tax

Post by Epsilon Delta » Wed Feb 06, 2019 5:17 pm

#Cruncher wrote:
Wed Feb 06, 2019 4:31 pm
Epsilon Delta wrote:
Wed Feb 06, 2019 2:43 pm
If you are in the 50% phase in for SS taxation $100 less of wages decreases taxable income by $150. Decreasing SS by $100 decreases taxable income by $125.
The first statement is correct, Epsilon; but not the second. If "Relevant Income" lies between the 50% and 85% SS thresholds, a $100 reduction in SS benefits (while all other income is unchanged) would reduce taxable income by only $25, not $125. This is because Relevant Income would fall $50 and 50% of that is $25. You can see this on the lower graph on the Main sheet of my Marginal Tax Rates spreadsheet.
Thanks, that will teach me not to try and do the math in my head.

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vineviz
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Re: quick double check that my SS will be taxed at 85%

Post by vineviz » Wed Feb 06, 2019 5:44 pm

Silk McCue wrote:
Wed Feb 06, 2019 5:05 pm
vineviz wrote:
Wed Feb 06, 2019 4:56 pm
Alan S. wrote:
Wed Feb 06, 2019 3:42 pm
No, Epsilon is correct. In the SS phase in range, $100 in AGI reduction will reduce the amount of SS included in AGI by another $50, for a total reduction of $150 in AGI.
Yeah, that's not really how the calculations work.
Yes it is. You might want to slow down as it may actually be you that has a misunderstanding of how one extra dollar of say RMD causes 50c of an additional dollar of SS in the phase in range to become taxable. So one dollar of additional taxable income causes 1.50 to become taxable.
Sorry, but no. AGI is not a factor in deterring how much of the Social Security benefit is taxable. This should be self-evident because AGI includes only the taxable portion of Social Security.

The portion of the Social Security benefit which is taxable depends on combined income (which is where the 50% thing comes into play).

It's true that at that threshold point that a $1 change in wages will have a different impact on AGI than a $1 change in Social Security benefits. No one has suggested otherwise, AFAIK.

The point I made was different: that a $1 change in taxable Social Security benefits has the same impact on taxes paid as a $1 change in wages: they are taxed at the same marginal rate.

In other words, the marginal tax rate depends on what the number on Line 7 is not on how you get to that number.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Jacklh
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Re: quick double check that 85% of my SS will be subject to tax

Post by Jacklh » Wed Feb 06, 2019 6:00 pm

It's all in how you look at it. You can add up all of your income according to the IRS and Social Security (convoluted) rules and you will be taxed on that amount at the appropriate tax rates. The last dollars at your highest rate. I like that way as it makes me feel better than combining rates to get a large tax rate.

Silk McCue
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Re: quick double check that 85% of my SS will be subject to tax

Post by Silk McCue » Wed Feb 06, 2019 6:14 pm

Jacklh wrote:
Wed Feb 06, 2019 6:00 pm
It's all in how you look at it. You can add up all of your income according to the IRS and Social Security (convoluted) rules and you will be taxed on that amount at the appropriate tax rates. The last dollars at your highest rate. I like that way as it makes me feel better than combining rates to get a large tax rate.
The point is to know how the taxation works. And if you can control the amount of SS being taxed and are interested in doing so you can. For me Roth conversions and QCDs will have a significant impact on total taxes paid in retirement and flexibility in spending above and beyond after starting SS at our ages of 68/70.

Cheers

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J G Bankerton
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Re: quick double check that my SS will be taxed at 85%

Post by J G Bankerton » Wed Feb 06, 2019 8:23 pm

The Wizard wrote:
Mon Feb 04, 2019 3:44 am
taxes paid to the IRS on SS income actually get funnelled back to the SS Trust Fund
Do you have a link for that. The tax I pay on Social Security income is not listed anywhere separately.

The Wizard
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Re: quick double check that my SS will be taxed at 85%

Post by The Wizard » Wed Feb 06, 2019 8:41 pm

J G Bankerton wrote:
Wed Feb 06, 2019 8:23 pm
The Wizard wrote:
Mon Feb 04, 2019 3:44 am
taxes paid to the IRS on SS income actually get funnelled back to the SS Trust Fund
Do you have a link for that. The tax I pay on Social Security income is not listed anywhere separately.
Here you go:
https://www.ssa.gov/oact/progdata/taxbenefits.html
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J G Bankerton
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Re: quick double check that my SS will be taxed at 85%

Post by J G Bankerton » Wed Feb 06, 2019 8:52 pm

The Wizard wrote:
Wed Feb 06, 2019 8:41 pm
J G Bankerton wrote:
Wed Feb 06, 2019 8:23 pm
The Wizard wrote:
Mon Feb 04, 2019 3:44 am
taxes paid to the IRS on SS income actually get funnelled back to the SS Trust Fund
Do you have a link for that. The tax I pay on Social Security income is not listed anywhere separately.
Here you go:
https://www.ssa.gov/oact/progdata/taxbenefits.html
That is fascinating. How do they know how much goes where? The extra tax is not a set percent of the total tax. Then they have to send the up to 50% tax to one fund and if any is taxed over 50% it goes to an different fund. :confused

Old_Dollar
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Re: quick double check that my SS will be taxed at 85%

Post by Old_Dollar » Wed Feb 06, 2019 9:06 pm

J G Bankerton wrote:
Sun Feb 03, 2019 11:46 pm
It is complicated but SS tax at "up to" 50% or "up to" 85%. I graduated from the 50% to the 85% and paid tax on 59.52% of my SS. There is nowhere to hide when it comes to additional SS tax as even tax free income is add in to compute SS tax.
Does this mean even money from Roth accounts is added to compute social security tax?
I am here solely to learn about investing.

Silk McCue
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Re: quick double check that my SS will be taxed at 85%

Post by Silk McCue » Wed Feb 06, 2019 9:10 pm

Old_Dollar wrote:
Wed Feb 06, 2019 9:06 pm
J G Bankerton wrote:
Sun Feb 03, 2019 11:46 pm
It is complicated but SS tax at "up to" 50% or "up to" 85%. I graduated from the 50% to the 85% and paid tax on 59.52% of my SS. There is nowhere to hide when it comes to additional SS tax as even tax free income is add in to compute SS tax.
Does this mean even money from Roth accounts is added to compute social security tax?
No it is not. No way, no how. That's one reason people do Roth conversions while in a lower bracket and before beginning SS.

You can relax.

Cheers

Silk McCue
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Re: quick double check that my SS will be taxed at 85%

Post by Silk McCue » Wed Feb 06, 2019 9:12 pm

J G Bankerton wrote:
Wed Feb 06, 2019 8:52 pm
That is fascinating. How do they know how much goes where? The extra tax is not a set percent of the total tax. Then they have to send the up to 50% tax to one fund and if any is taxed over 50% it goes to an different fund. :confused
The IRS has all the tax returns. They know exactly how much income tax was paid due to SS.

Cheers

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