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

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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 9:15 pm

Silk McCue wrote:
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
Right.
They have these computer gizmos, see?
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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 9:26 pm

Silk McCue wrote:
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
I wish I knew. I could have taken losses in 2018 instead of 2019. I have control over my income but this "hump" tax was a surprise . I know why it is called a "hump" tax, that is what we in the 51% bracket get. :shock:

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

Post by Silk McCue » Wed Feb 06, 2019 9:37 pm

J G Bankerton wrote:
Wed Feb 06, 2019 9:26 pm
Silk McCue wrote:
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
I wish I knew. I could have taken losses in 2018 instead of 2019. I have control over my income but this "hump" tax was a surprise . I know why it is called a "hump" tax, that is what we in the 51% bracket get. :shock:
Even if someone is in the 12% bracket they can pay 22.2% on the nex taxable dollar when SS comes into play (.12 x 1.85). 22% bracket -> 40.7%. As I posted earlier if you go fully through the Hump consuming the full 85% of SS you drop back on the next dollar to a true 22%. Converting additional tax deferred up to the top of the 22 bracket at that point may make very good sense.

Cheers

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

Post by HueyLD » Wed Feb 06, 2019 11:31 pm

Nowizard wrote:
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.
The brackets were frozen by the ACA for a few years and will again be indexed to inflation in year 2020.

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

Post by Epsilon Delta » Thu Feb 07, 2019 4:13 am

vineviz wrote:
Wed Feb 06, 2019 5:44 pm
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.
That point is uninteresting.
It's also not what you said:
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.
vineviz wrote:
Wed Feb 06, 2019 5:44 pm
In other words, the marginal tax rate depends on what the number on Line 7 is not on how you get to that number.
You are using the wrong definition of marginal rate.

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

Post by vineviz » Thu Feb 07, 2019 8:10 am

Epsilon Delta wrote:
Thu Feb 07, 2019 4:13 am
vineviz wrote:
Wed Feb 06, 2019 5:44 pm
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.
That point is uninteresting.
Maybe, but I made it to clear up a misunderstanding expressed earlier to the contrary.
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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 » Thu Feb 07, 2019 9:57 am

Silk McCue wrote:
Wed Feb 06, 2019 9:37 pm
Even if someone is in the 12% bracket they can pay 22.2% on the nex taxable dollar when SS comes into play
I paid $51 in federal income tax on $100 of income. :oops:

A 51% tax bracket is totally out of line for seniors on a pension.

I feel like throwing some tea in the harbor but it's frozen.

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

Post by Silk McCue » Thu Feb 07, 2019 10:20 am

J G Bankerton wrote:
Thu Feb 07, 2019 9:57 am
Silk McCue wrote:
Wed Feb 06, 2019 9:37 pm
Even if someone is in the 12% bracket they can pay 22.2% on the nex taxable dollar when SS comes into play
I paid $51 in federal income tax on $100 of income. :oops:

A 51% tax bracket is totally out of line for seniors on a pension.

I feel like throwing some tea in the harbor but it's frozen.
That means you have quite a sizeable income in retirement and are at least in the 24% bracket with those additional funds. The impact on those in the 12% bracket probably has a more significant practical impact on them than it does on you with your higher percentage. I do agree it is the pits.

Actually in the 24% bracket with .85 hump the total tax on $100 would be 44.4%. That's why tax planning is important for everyone and especially those with high income when taking SS.

Cheers
Last edited by Silk McCue on Sun Feb 10, 2019 7:11 am, edited 1 time in total.

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

Post by The Wizard » Thu Feb 07, 2019 10:37 am

Silk McCue wrote:
Thu Feb 07, 2019 10:20 am

...That means you have quite a sizeable income in retirement and are at least in the 24% bracket with those additional funds. The impact on those in the 12% bracket probably has a more significant practical impact on them than it does on you with your higher percentage. I do agree it is the pits.

Actually in the 24% bracket with .85 hump the total tax on $100 would be 44.4%. That's why tax planning is important for everyone and especially those with high income when taking SS...
I'm not sure about this.
I'm in the 24% marginal bracket and am Well Beyond the SS Hump Zone, meaning 85% of my gross SS benefit is included in my AGI.

I don't think it's possible to be both in the 24% marginal tax bracket and the upper SS Hump Zone; 24% bracket starts at $82,501 of Taxable income for Single.

I think we need to audit Bankerton's tax return to figure just how this 51% thing is happening...
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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 » Thu Feb 07, 2019 10:44 am

Silk McCue wrote:
Thu Feb 07, 2019 10:20 am
J G Bankerton wrote:
Thu Feb 07, 2019 9:57 am
Silk McCue wrote:
Wed Feb 06, 2019 9:37 pm
Even if someone is in the 12% bracket they can pay 22.2% on the nex taxable dollar when SS comes into play
I paid $51 in federal income tax on $100 of income. :oops:

A 51% tax bracket is totally out of line for seniors on a pension.

I feel like throwing some tea in the harbor but it's frozen.
That means you have quite a sizeable income in retirement
It means I'm the typical Boglehead who followed the path. In my neck of the woods I'm lower middle class, just common folks.

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

Post by Silk McCue » Thu Feb 07, 2019 11:02 am

The Wizard wrote:
Thu Feb 07, 2019 10:37 am
Silk McCue wrote:
Thu Feb 07, 2019 10:20 am

...That means you have quite a sizeable income in retirement and are at least in the 24% bracket with those additional funds. The impact on those in the 12% bracket probably has a more significant practical impact on them than it does on you with your higher percentage. I do agree it is the pits.

Actually in the 24% bracket with .85 hump the total tax on $100 would be 44.4%. That's why tax planning is important for everyone and especially those with high income when taking SS...
I'm not sure about this.
I'm in the 24% marginal bracket and am Well Beyond the SS Hump Zone, meaning 85% of my gross SS benefit is included in my AGI.

I don't think it's possible to be both in the 24% marginal tax bracket and the upper SS Hump Zone; 24% bracket starts at $82,501 of Taxable income for Single.

I think we need to audit Bankerton's tax return to figure just how this 51% thing is happening...
lol ....

You are right about the 24% bracket. I didn't take time to check as I was just doing reverse math to get to a bracket that could cause that 51%, which I couldn't, but just used the one that would get below it. Upon the first of us to pass away the survivor will be unable to avoid filling the 40.7% (22% bracket) Hump based solely on a COLA'd pension and substantial SS benefit. However all RMD's are planned to be consumed as QCD's so no real planning can avoid that happening as we will have converted the bulk of our holdings to Roth by ages 68/70 to reduce RMDS for just the purpose of QCD's.

Cheers
Last edited by Silk McCue on Thu Feb 07, 2019 3:47 pm, edited 1 time 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 » Thu Feb 07, 2019 3:24 pm

Silk McCue wrote:
Thu Feb 07, 2019 11:02 am

I think we need to audit Bankerton's tax return to figure just how this 51% thing is happening...
I did a what-if in TurboTax. It may have something to do with how much of my LTCG are taxes. I had a wild year taking large gains in January and then some losses in December. I also had to do a RMD, humped again. I have to trust TurboTax because I have short/long/gains/losses for 2018. Way too complicated for me. :confused

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

Post by curmudgeon » Thu Feb 07, 2019 3:48 pm

J G Bankerton wrote:
Thu Feb 07, 2019 3:24 pm
Silk McCue wrote:
Thu Feb 07, 2019 11:02 am

I think we need to audit Bankerton's tax return to figure just how this 51% thing is happening...
I did a what-if in TurboTax. It may have something to do with how much of my LTCG are taxes. I had a wild year taking large gains in January and then some losses in December. I also had to do a RMD, humped again. I have to trust TurboTax because I have short/long/gains/losses for 2018. Way too complicated for me. :confused
Yep, there is a special magic hump in there, where an additional dollar of ordinary income pushes a dollar of LTCG or QDiv out of the 0% into 15%, AND pushes a dollar of SS into being taxable, which in turn bumps *more* LTCG being taxed, along with the base tax rate on the ordinary income. It depends very much on the exact proportions of SS, LTCG, and RMD/ordinary income.

I've done some projections for when we hit RMD stages, using the calculator at bankrate, and found some humps which I think went as high as 57% marginal. The humps were only a few thousand $ wide. I don't remember the exact combinations that were hitting this now, but it was a reminder to me to look more closely when we start collecting SS. My general plan is to try to avoid being in one of those high marginal zones, by either pushing well above (by doing Roth conversions up to the end of the regular tax bracket), or doing QCDs (to stay below). Because those humps are not that big, the absolute dollar amounts aren't really that big, but I'd still prefer to avoid them.

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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 » Thu Feb 07, 2019 3:58 pm

curmudgeon wrote:
Thu Feb 07, 2019 3:48 pm
Yep, there is a special magic hump in there, where an additional dollar of ordinary income pushes a dollar of LTCG or QDiv out of the 0% into 15%, AND pushes a dollar of SS into being taxable, which in turn bumps *more* LTCG being taxed, along with the base tax rate on the ordinary income.
That's it, I'm in a "perfect storm" of taxation.

I pay ZERO New Jersey income tax. :shock: It was a bone they threw old people when they raised the gas tax. They figured we were to far gone to drive. :mrgreen:

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

Post by The Wizard » Thu Feb 07, 2019 4:17 pm

J G Bankerton wrote:
Thu Feb 07, 2019 3:58 pm
curmudgeon wrote:
Thu Feb 07, 2019 3:48 pm
Yep, there is a special magic hump in there, where an additional dollar of ordinary income pushes a dollar of LTCG or QDiv out of the 0% into 15%, AND pushes a dollar of SS into being taxable, which in turn bumps *more* LTCG being taxed, along with the base tax rate on the ordinary income.
That's it, I'm in a "perfect storm" of taxation.

I pay ZERO New Jersey income tax. :shock: It was a bone they threw old people when they raised the gas tax. They figured we were to far gone to drive. :mrgreen:
Bankerton is getting double humped???
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Re: quick double check that 85% of my SS will be subject to tax

Post by #Cruncher » Sat Feb 09, 2019 11:30 pm

The Wizard wrote:
Thu Feb 07, 2019 10:37 am
I don't think it's possible to be both in the 24% marginal tax bracket and the upper SS Hump Zone; 24% bracket starts at $82,501 of Taxable income for Single.
That's right. As shown in the two tables below, a single taxpayer with all ordinary income and a $12,000 standard deduction would need $48,736 of Social Security to reach the 24% bracket and not have passed beyond the 85% "hump". Joint filers with a $24,000 standard deduction would require SS of $112,636. Both of these are higher than any single or joint SS benefit:

Code: Select all

                          Single     Joint
                          ------    ------
SS benefit             48,736   112,636
   @ 85%                  41,426    95,741
Non SS ordinary income    53,074    93,259
                          ------   -------
Adjusted Gross Income     94,500   189,000
Standard deduction        12,000    24,000
                          ------   -------
Taxable income            82,500   165,000 (start of 24% bracket)
The following table shows, for various SS benefit amounts, what the range of other income is that puts a taxpayer in the "hump" where each $100 of other income causes another $85 of SS to become taxable. E.g., for a single taxpayer with $20,000 of SS the "hump" runs from $24,000 to $38,706 of other income. At that point the maximum 85% of SS has become taxable, so that other income beyond that doesn't cause any more SS to become taxable.

Code: Select all

Row  Col A             Col B   Col C   Col D     Col E   Col F   Col G
  1                   ------- Single -------    -------- Joint -------
  2  50% threshold            25,000                    32,000
  3  85% threshold            34,000                    44,000
     SS Ben            Start    End    Range     Start    End    Range
  5  10,000           29,000  33,706   4,706    39,000  43,118   4,118
  6  20,000           24,000  38,706  14,706    34,000  46,941  12,941
  7  30,000           19,000  43,706  24,706    29,000  51,941  22,941
  8  40,000           14,000  48,706  34,706    24,000  56,941  32,941
  9  48,736            9,632  53,074  43,442    19,632  61,309  41,677
 10  60,000                                     14,000  66,941  52,941
 11  70,000                                      9,000  71,941  62,941
 12 112,636                                          0  93,259  93,259

curmudgeon wrote:
Thu Feb 07, 2019 3:48 pm
Yep, there is a special magic hump in there, where an additional dollar of ordinary income pushes a dollar of LTCG or QDiv out of the 0% into 15%, AND pushes a dollar of SS into being taxable, which in turn bumps *more* LTCG being taxed, along with the base tax rate on the ordinary income. … I've done some projections ... and found some humps which I think went as high as 57% marginal. The humps were only a few thousand $ wide.
I don't see how the marginal rate could be as high as 57%. I believe the maximum is 49.95%. This can arise in the 12% tax bracket when $100 of non-SS ordinary income causes $85 of SS to become taxable, and the $185 of additional ordinary income pushes $185 of long term capital gain or qualified dividends from the 0% to the 15% bracket.
49.95 = 12% * 185 + 15% * 185

Because the start of the 15% LTCG bracket begins where the 12% ordinary income bracket ends, this phenomenon can't extend into higher ordinary tax brackets. [*] The width of this maximum hump can be many thousands of dollars if one has a lot of LTCG or qualified dividends.

* Because of an anomaly in current tax law the 15% LTCG bracket actually begins $100 (single) or $200 (joint) below the end of the 12% ordinary income bracket.

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

Post by Carl53 » Sun Feb 10, 2019 6:21 am

#Cruncher wrote:
Sat Feb 09, 2019 11:30 pm
The Wizard wrote:
Thu Feb 07, 2019 10:37 am
I don't think it's possible to be both in the 24% marginal tax bracket and the upper SS Hump Zone; 24% bracket starts at $82,501 of Taxable income for Single.
That's right. As shown in the two tables below, a single taxpayer with all ordinary income and a $12,000 standard deduction would need $48,736 of Social Security to reach the 24% bracket and not have passed beyond the 85% "hump". Joint filers with a $24,000 standard deduction would require SS of $112,636. Both of these are higher than any single or joint SS benefit:

Code: Select all

                          Single     Joint
                          ------    ------
SS benefit             48,736   112,636
   @ 85%                  41,426    95,741
Non SS ordinary income    53,074    93,259
                          ------   -------
Adjusted Gross Income     94,500   189,000
Standard deduction        12,000    24,000
                          ------   -------
Taxable income            82,500   165,000
The following table shows, for various SS benefit amounts, what the range of other income is that puts a taxpayer in the "hump" where each $100 of other income causes another $85 of SS to become taxable. E.g., for a single taxpayer with $20,000 of SS the "hump" runs from $24,000 to $38,706 of other income. At that point the maximum 85% of SS has become taxable, so that other income beyond that doesn't cause any more SS to become taxable.

Code: Select all

Row  Col A             Col B   Col C   Col D     Col E   Col F   Col G
  1                   ------- Single -------    -------- Joint -------
  2  50% threshold            25,000                    32,000
  3  85% threshold            34,000                    44,000
     SS Ben            Start    End    Range     Start    End    Range
  5  10,000           29,000  33,706   4,706    39,000  43,118   4,118
  6  20,000           24,000  38,706  14,706    34,000  46,941  12,941
  7  30,000           19,000  43,706  24,706    29,000  51,941  22,941
  8  40,000           14,000  48,706  34,706    24,000  56,941  32,941
  9  48,736            9,632  53,074  43,442    19,632  61,309  41,677
 10  60,000                                     14,000  66,941  52,941
 11  70,000                                      9,000  71,941  62,941
 12 112,636                                          0  93,259  93,259

curmudgeon wrote:
Thu Feb 07, 2019 3:48 pm
Yep, there is a special magic hump in there, where an additional dollar of ordinary income pushes a dollar of LTCG or QDiv out of the 0% into 15%, AND pushes a dollar of SS into being taxable, which in turn bumps *more* LTCG being taxed, along with the base tax rate on the ordinary income. … I've done some projections ... and found some humps which I think went as high as 57% marginal. The humps were only a few thousand $ wide.
I don't see how the marginal rate could be as high as 57%. I believe the maximum is 49.95%. This can arise in the 12% tax bracket when $100 of non-SS ordinary income causes $85 of SS to become taxable, and the $185 of additional ordinary income pushes $185 of long term capital gain or qualified dividends from the 0% to the 15% bracket.
49.95 = 12% * 185 + 15% * 185

Because the start of the 15% LTCG bracket begins where the 12% ordinary income bracket ends, this phenomenon can't extend into higher ordinary tax brackets. [*] The width of this maximum hump can be many thousands of dollars if one has a lot of LTCG or qualified dividends.

* Because of an anomaly in current tax law the 15% LTCG bracket actually begins $100 (single) or $200 (joint) below the end of the 12% ordinary income bracket.
As usual an exellent analysis. Keep in mind that most folks on SS are of age 65 and get either $1600 extra standard deduction for singles or $2600 for couples (both over 65). Also, while SS, tax brackets, standard deductions are all inflation indexed, the SS 50/85% taxable thresholds are not as nor are most non-public pensions. The effect is cause more and more taxpayers to have 85% of SS being taxed over time as the hump broadens.

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

Post by dodecahedron » Sun Feb 10, 2019 7:06 am

#Cruncher wrote:
Sat Feb 09, 2019 11:30 pm
I believe the maximum is 49.95%. This can arise in the 12% tax bracket when $100 of non-SS ordinary income causes $85 of SS to become taxable, and the $185 of additional ordinary income pushes $185 of long term capital gain or qualified dividends from the 0% to the 15% bracket.
49.95 = 12% * 185 + 15% * 185
Your example above can easily be adjusted to make the effective marginal rate higher than 49.95%. Easiest example: suppose the taxpayer (TP) in your example itemizes deductions and has large Schedule A medical deductions subject to a 7.5% of AGI threshhold. Then the $185 increase in AGI will reduce the medical deduction and further increase taxable income and therefore the amount of tax. (.12*.075*185=$1.66).

Another example: suppose your TP is in the AGI phase-out range for an education tax credit. The $185 increase in AGI could have a further effect on tax liability if a member of the tax household had higher education expenses.

If your TP has to pay for daycare while working (e.g., for care for a grandchild in their custody or a disabled spouse), then the increase in AGI could decrease the amount of their daycare credit and increase their tax liability.

If the TP or any member of their tax household has an ACA exchange policy eligible for Premium Tax Credits (PTC), then the PTC could change.

There are so many AGI-dependent provisions of the tax laws that I am sure it is possible to construct other cases.

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

Post by dodecahedron » Sun Feb 10, 2019 7:33 am

#Cruncher wrote:
Sat Feb 09, 2019 11:30 pm
The Wizard wrote:
Thu Feb 07, 2019 10:37 am
I don't think it's possible to be both in the 24% marginal tax bracket and the upper SS Hump Zone; 24% bracket starts at $82,501 of Taxable income for Single.
That's right. As shown in the two tables below, a single taxpayer with all ordinary income and a $12,000 standard deduction would need $48,736 of Social Security to reach the 24% bracket and not have passed beyond the 85% "hump". Joint filers with a $24,000 standard deduction would require SS of $112,636. Both of these are higher than any single or joint SS benefit:
Edited to delete earlier comment--had not had enough coffee to think this through properly.

Edited to add: here is an (admittedly rare and more than a little contrived) case where it might be possible to be in 24% bracket and upper hump zone simultaneously.

TP is Married Filing Separately (MFS) from her current spouse. He itemizes so she is forced to do so as well. However, we will assume she has zero itemized deductions for the year. We also assume she is collecting maximal widowś benefits from a deceased former spouse who deferred claiming until he was 70. (This means her remarriage had to happen after age 60.) We also have to assume that she did not live with her current spouse at any time during the tax year--otherwise 85% of the SS would have been included in her AGI regardless of other income.
Last edited by dodecahedron on Sun Feb 10, 2019 8:18 am, edited 3 times in total.

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

Post by Silk McCue » Sun Feb 10, 2019 7:47 am

dodecahedron wrote:
Sun Feb 10, 2019 7:33 am
deleted earlier comment--had not had enough coffee to think this through.
I was about to ask you a question when I see that you deleted your prior comment. But I will ask this questions anyway.

I know that you are a proponent of QCDs as am I and it is an integral part of my Roth Conversion strategy up to ages 68/70 for us and then consuming above the RMD to perform QCDs at 0% tax thereafter. Do the total of your itemized deductions exceed your standard deduction combined with 100% of your charitable from QCDs'?

I expect the answer is yes but also wonder if that is true every year based upon varying medical expenses.

Cheers

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

Post by dodecahedron » Sun Feb 10, 2019 7:57 am

^ will reply by PM to avoid derailing this thread.

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

Post by J G Bankerton » Sun Feb 10, 2019 12:24 pm

There is a spread sheet in the WiKi that runs the numbers. It is the amount of LTCG that become taxable that put me in the 51% marginal bracket.
This is my marginal tax rate for 2019, if my regular income is between $26,000 and $31,500 I pay from 49% to 51% marginal rate. Then I pay a 40% marginal rate up to $37,500, then I max out and return to 22%

The power to tax is the power to kill.

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

Post by dodecahedron » Sun Feb 10, 2019 2:59 pm

J G Bankerton wrote:
Sun Feb 10, 2019 12:24 pm
There is a spread sheet in the WiKi that runs the numbers. It is the amount of LTCG that become taxable that put me in the 51% marginal bracket.
This is my marginal tax rate for 2019, if my regular income is between $26,000 and $31,500 I pay from 49% to 51% marginal rate. Then I pay a 40% marginal rate up to $37,500, then I max out and return to 22%
The spreadsheet in the Wiki is on a page that warns you at the top of the page:
Wiki wrote:Contributor note: The spreadsheet dedicated to SS tax impact (TheHump.xlsx) has not been updated for the 2018 tax law changes.

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

Post by J G Bankerton » Sun Feb 10, 2019 5:37 pm

dodecahedron wrote:
Sun Feb 10, 2019 2:59 pm

The spreadsheet in the Wiki is on a page that warns you at the top of the page:
Yes it is true but real men don't RTFM. Especially when 90% doesn't apply. I can tell I'm not the only one who was ignorant of the hump by the number of posters who doubt I'm in a 51% marginal tax bracket.

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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 » Tue Feb 12, 2019 12:15 am

#Cruncher wrote:
Sat Feb 09, 2019 11:30 pm
The width of this maximum [49.95% marginal tax rate] hump can be many thousands of dollars if one has a lot of LTCG or qualified dividends.
The "width" of this hump also depends on the amount of Social Security Benefit as shown in the following table.

Code: Select all

Row         Col A              Col B    Col C      Col D    Col E      Col F    Col G    Col H
  1  Single = 1, Joint = 2         1 
  2  LTCG & QDI               20,000 
  3  Deduction                12,000 
  4  50% threshold            25,000 
  5  85% threshold            34,000 
  6  Start LTCG 15% bracket   38,600 
                             LTCG 15% Taxable       SS 85% Hump         49.95% Marginal Rate
                             ----------------     ---------------     ------------------------
                              Start      End      Start      End      Start      End    Range
                              ------   ------     ------   ------     ------   ------   ------
  9  Adjusted Gross Income    50,600   70,600
 10  Soc Security Benefit     ------------------- Non-SS Ordinary Income ---------------------

Code: Select all

 11             0             30,600   50,600     14,000   14,000     30,600   14,000
 12         5,000             26,350   46,350     11,500   13,559     26,350   13,559
 13        10,000             22,100   42,100      9,000   13,706     22,100   13,706

 14        15,000             17,850   37,850      6,500   16,206     17,850   16,206
 15        20,000             15,946   33,600      4,000   18,706     15,946   18,706    2,760 
 16        25,000             14,797   29,350      1,500   21,206     14,797   21,206    6,409

 17        30,000             13,649   25,100     (1,000)  23,706     13,649   23,706   10,057
 18        35,000             12,500   23,311     (3,500)  26,206     12,500   23,311   10,811 
 19        40,000             11,351   22,162     (6,000)  28,706     11,351   22,162   10,811
For example assume a single taxpayer with $20,000 of long term capital gains (LTCG) and qualified dividend income (QDI) and $20,000 of Social Security benefit taking the standard deduction in 2018. As shown in row 15, at non-SS ordinary income of $15,946 his LTCG & QDI starts being taxed at 15%. This continues until non-SS ordinary income reaches $33,600 when all $20,000 of the LTCG & QDI has been taxed at 15%.

Meanwhile non-SS ordinary income from $4,000 to $18,706 puts him in the "hump" where each $100 makes $85 of SS become taxable. The intersection of these two ranges ($15,946 to $18,706) is where he'll incur the 49.95% marginal tax rate. Thus the "width" is only $2,760. But with higher SS the width can be as much as $10,811.

For those wishing to see the results for a different amount of LTCG & QDI or for a joint tax return, follow these steps:
  • Select All, Copy, and Paste [ * ] the following at cell A1 of a blank Excel sheet.

    Code: Select all

    Single = 1, Joint = 2	1
    LTCG & QDI	20000
    Deduction	=IF(B1=1,12000,24000)
    50% threshold	=IF(B1=1,25000,32000)
    85% threshold	=IF(B1=1,34000,44000)
    Start LTCG 15% bracket	=IF(B1=1,38600,77200)
    	LTCG/QDI 15% Taxable		SS 85% Hump			49.95% Marginal Tax 
    	Start	End	Start	End	Start	End	Range
    Adjusted Gross Income	=B6+B3	=B9+B2
    Soc Security Benefit				Non-SS Ordinary Income
    0	=IF($A11>2*($B$5-B$9+0.5*($B$5-$B$4)),IF(0.5*($B$5-$B$4)+0.85*((B$9+0.5*$B$4+0.35*$B$5-0.425*$A11)/1.85+$A11/2-$B$5)>0.85*$A11,B$9-0.85*$A11,(B$9+0.5*$B$4+0.35*$B$5-0.425*$A11)/1.85),IF($A11>2*($B$4-B$9),(B$9-$A11*0.25+0.5*$B$4)/1.5,B$9))-$B$2	=IF($A11>2*($B$5-C$9+0.5*($B$5-$B$4)),IF(0.5*($B$5-$B$4)+0.85*((C$9+0.5*$B$4+0.35*$B$5-0.425*$A11)/1.85+$A11/2-$B$5)>0.85*$A11,C$9-0.85*$A11,(C$9+0.5*$B$4+0.35*$B$5-0.425*$A11)/1.85),IF($A11>2*($B$4-C$9),(C$9-$A11*0.25+0.5*$B$4)/1.5,C$9))-$B$2	=B$5-A11/2-$B$2	=D11+(0.85*$A11-0.5*MIN(A11,B$5-B$4))/0.85	=MAX(B11,D11)	=MIN(C11,E11)	=MAX(0,G11-F11)
    5000	=IF($A12>2*($B$5-B$9+0.5*($B$5-$B$4)),IF(0.5*($B$5-$B$4)+0.85*((B$9+0.5*$B$4+0.35*$B$5-0.425*$A12)/1.85+$A12/2-$B$5)>0.85*$A12,B$9-0.85*$A12,(B$9+0.5*$B$4+0.35*$B$5-0.425*$A12)/1.85),IF($A12>2*($B$4-B$9),(B$9-$A12*0.25+0.5*$B$4)/1.5,B$9))-$B$2	=IF($A12>2*($B$5-C$9+0.5*($B$5-$B$4)),IF(0.5*($B$5-$B$4)+0.85*((C$9+0.5*$B$4+0.35*$B$5-0.425*$A12)/1.85+$A12/2-$B$5)>0.85*$A12,C$9-0.85*$A12,(C$9+0.5*$B$4+0.35*$B$5-0.425*$A12)/1.85),IF($A12>2*($B$4-C$9),(C$9-$A12*0.25+0.5*$B$4)/1.5,C$9))-$B$2	=B$5-A12/2-$B$2	=D12+(0.85*$A12-0.5*MIN(A12,B$5-B$4))/0.85	=MAX(B12,D12)	=MIN(C12,E12)	=MAX(0,G12-F12)
    =2*A12-A11	=IF($A13>2*($B$5-B$9+0.5*($B$5-$B$4)),IF(0.5*($B$5-$B$4)+0.85*((B$9+0.5*$B$4+0.35*$B$5-0.425*$A13)/1.85+$A13/2-$B$5)>0.85*$A13,B$9-0.85*$A13,(B$9+0.5*$B$4+0.35*$B$5-0.425*$A13)/1.85),IF($A13>2*($B$4-B$9),(B$9-$A13*0.25+0.5*$B$4)/1.5,B$9))-$B$2	=IF($A13>2*($B$5-C$9+0.5*($B$5-$B$4)),IF(0.5*($B$5-$B$4)+0.85*((C$9+0.5*$B$4+0.35*$B$5-0.425*$A13)/1.85+$A13/2-$B$5)>0.85*$A13,C$9-0.85*$A13,(C$9+0.5*$B$4+0.35*$B$5-0.425*$A13)/1.85),IF($A13>2*($B$4-C$9),(C$9-$A13*0.25+0.5*$B$4)/1.5,C$9))-$B$2	=B$5-A13/2-$B$2	=D13+(0.85*$A13-0.5*MIN(A13,B$5-B$4))/0.85	=MAX(B13,D13)	=MIN(C13,E13)	=MAX(0,G13-F13)
  • Format for readability.
  • Copy row 13 down as far as needed.
  • Revise cells B1, B2, B3, B6, A11, & A12 as needed.
To see the results graphically, use the Main sheet of my Marginal Tax Rates spreadsheet.

* If you have trouble pasting, try "Paste Special" and "Text".

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

Post by FiveK » Tue Feb 12, 2019 1:05 am

J G Bankerton wrote:
Sun Feb 10, 2019 5:37 pm
dodecahedron wrote:
Sun Feb 10, 2019 2:59 pm

The spreadsheet in the Wiki is on a page that warns you at the top of the page:
Yes it is true but real men don't RTFM. Especially when 90% doesn't apply. I can tell I'm not the only one who was ignorant of the hump by the number of posters who doubt I'm in a 51% marginal tax bracket.
Or they simply go to the next line that says "Instead, the Personal finance toolbox spreadsheet can graph the tax impact of SS benefits, and includes 2018 tax law changes" and download and use that one.

Is that what you did?

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

Post by CurlyDave » Tue Feb 12, 2019 1:22 am

It is worse than you think.

For instance, in 2018 my SS benefit was $22,995.

BUT in addition to paying taxes on that, I had $4179.60 deducted for Medicare part B and $650.40 deducted for Medicare part D.

Now in the strictest sense of the word, these are deductions, not taxes. OTOH, they are taken from my benefits without my consent, they are based on my total income.

Essentially if it looks like a duck, walks like a duck and quacks like a duck -- it's a TAX.

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

Post by NYnative » Tue Feb 12, 2019 1:41 am

I'm not sure I understand all the math involved and why people are so worried about just being below a break point. If you have that little income, you deserve to have less of your SS taxed. If you are over that limit, then you get hit at 50% or 85% of your SS being taxed at your highest marginal rate. It doesn't matter where you add it in - something has to be taxed at your highest marginal rate. Some people have planned for this for the last 20 years - a very, very few actually contemplated all the machinations necessary to avoid various humps, cliffs and break points.

Once you start RMDs, assuming you have any IRAs or 401Ks, all your efforts will be for naught - unless you use QCDs. I always assumed that 85% of my SS would be taxed and that's exactly what happened. But I would not have wanted to have a lower pension or assets just to avoid taxes on SS. If you have to spend lots of time and effort thinking it through, then don't. Whatever happens will happen. Worry more about Medicare and IRMAA - that cliff is a real high one and can be very costly.

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

Post by The Wizard » Tue Feb 12, 2019 2:34 am

CurlyDave wrote:
Tue Feb 12, 2019 1:22 am
It is worse than you think.

For instance, in 2018 my SS benefit was $22,995.

BUT in addition to paying taxes on that, I had $4179.60 deducted for Medicare part B and $650.40 deducted for Medicare part D.

Now in the strictest sense of the word, these are deductions, not taxes. OTOH, they are taken from my benefits without my consent, they are based on my total income.

Essentially if it looks like a duck, walks like a duck and quacks like a duck -- it's a TAX.
That's the additional Medicare IRMAA amount that's biting you, third tier above the base amount for low income people.
This is a quite different problem from the SS humps; you're well beyond the Hump Zone and 85% of your SS is being taxed, same as me...
Attempted new signature...

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

Post by CurlyDave » Tue Feb 12, 2019 2:41 am

The Wizard wrote:
Tue Feb 12, 2019 2:34 am
...That's the additional Medicare IRMAA amount that's biting you, third tier above the base amount for low income people.
This is a quite different problem from the SS humps; you're well beyond the Hump Zone and 85% of your SS is being taxed, same as me...
Oh, I know exactly what it is.

But it is also just a tax by another name. And any sufficiently successful person is going to have his/her pocket picked one more time...

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

Post by NYnative » Tue Feb 12, 2019 2:56 am

There’s an easy solution to that - don’t be successful.

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

Post by The Wizard » Tue Feb 12, 2019 2:56 am

CurlyDave wrote:
Tue Feb 12, 2019 2:41 am
The Wizard wrote:
Tue Feb 12, 2019 2:34 am
...That's the additional Medicare IRMAA amount that's biting you, third tier above the base amount for low income people.
This is a quite different problem from the SS humps; you're well beyond the Hump Zone and 85% of your SS is being taxed, same as me...
Oh, I know exactly what it is.

But it is also just a tax by another name. And any sufficiently successful person is going to have his/her pocket picked one more time...
Well, Medicare is sort of going broke due to the hold harmless provision and the low percentage of costs that lower income retirees pay.
So basically, it's up to you and me to keep it solvent...
Attempted new signature...

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

Post by J G Bankerton » Tue Feb 12, 2019 8:42 am

CurlyDave wrote:
Tue Feb 12, 2019 1:22 am
Now in the strictest sense of the word, these are deductions, not taxes. OTOH, they are taken from my benefits without my consent, they are based on my total income.
One doesn't have to have Medicare, one can opt out. If one has VA medical coverage one can opt out of Medicare. The VA can't file a claim against Medicare for co-insurance.

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

Post by J G Bankerton » Tue Feb 12, 2019 8:45 am

NYnative wrote:
Tue Feb 12, 2019 2:56 am
There’s an easy solution to that - don’t be successful.
It is scary what some people consider "successful". :annoyed

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

Post by J G Bankerton » Tue Feb 12, 2019 8:48 am

NYnative wrote:
Tue Feb 12, 2019 1:41 am
If you have that little income, you deserve to have less of your SS taxed.
I have control over my income, I'm carrying $14,000 in realized losses for 2019; I'm locked and loaded.

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

Post by NYnative » Tue Feb 12, 2019 11:43 am

I’d rather have $14,000 in realized gains.

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

Post by J G Bankerton » Tue Feb 12, 2019 12:00 pm

NYnative wrote:
Tue Feb 12, 2019 11:43 am
I’d rather have $14,000 in realized gains.
I sold VTI and bought VOO on January 2ed; I was out of the market for a minute and sixteen seconds.
That's the beauty of my realized losses, they are no longer lost. They have returned and brought back some prisoners; all yet to be realized gains.

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

Post by NYnative » Tue Feb 12, 2019 12:07 pm

"That's the beauty of my realized losses, they are no longer lost. They have returned and brought back some prisoners; all yet to be realized gains."

As long as you have gains and the market doesn't tank when the budget deal falls through, the China negotiations collapse and N Korea doesn't test a missile in the direction of Hawaii. Good luck.

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

Post by prudent » Tue Feb 12, 2019 3:08 pm

Topic is locked (exhausted). I removed a couple off-topic posts.

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