My father will start receiving social security benefits soon. We are concerned about taxes on the benefits. From what we've heard, the benefits can be taxed at a rate as high as 85%! Is this true?Fortunately, it's not as bad as you think. In the worst case, up to 85% of his social security benefits are subject to federal taxes -- at his regular income-tax rate (10% to 39.1% in 2001, depending on his income).
Many people, however, don't have to pay any income tax on their social security benefits. It all depends on how much they receive from other taxable sources (pensions, savings, etc.), plus tax-exempt interest (such as interest from municipal bonds) and one-half of their social security benefits.
If your father is single and that number is less than $25,000 (or $32,000 if married filing a joint return), then none of his social security benefits are taxable. If he's single and that number is $25,000 to $34,000 ($32,000 to $44,000 if married filing jointly), then up to 50% of the social security benefits may be taxable. If the number is higher than that, then up to 85% of the social security benefits may be taxable.
Before filing his 2001 taxes, your dad should receive a From 1099-SSA, which lists social security benefits for the year. Once he receives this form, download IRS publication 554, Older Americans' Tax Guide. It includes a worksheet that will help him determine how much of his benefits -- if any -- are subject to income tax.
There are some strategies for lowering his taxable social security benefits. In years that he's close to the threshold for having the benefits taxed, see what he can do to lower his adjusted gross income -- such as taking fewer IRA withdrawals or holding off on some stock sales -- enough to keep him under the cut-off.
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My father will start receiving social security benefits soon. We are concerned about taxes on the benefits. From what we've heard, the benefits can be taxed at a rate as high as 85%! Is this true?Fortunately, it's not as bad as you think. In the worst case, up to 85% of his social security benefits are subject to federal taxes -- at his regular income-tax rate (10% to 39.1% in 2001, depending on his income).