Social Security Benefits may be taxable depending on the revised adjusted gross income(RAGI) which is the sum of adjusted gross income(AGI), half of the social security benefits and tax-exempt interest, if any. If the RAGI is below $25000.0 for single filers($32000.0 for married filing jointly) then none of social security benefits are taxable. If the RAGI is in between $25000.0 for single filers($32000.0 for married filing jointly) and $34000.0 for single filers($44000.0 for married filing jointly), then upto 50% of social security benefits are taxable. If the RAGI is above $34000.0 for single filers($44000.0 for married filing jointly), then upto 85% of social Security benefits are taxable.
Example 1.
John, filing status single, has AGI $20000.0 in 2016. Assume that he has received $4000.0 social security benefits and has $1000.0 tax-exempt interest. His RAGI is $23000.0.
RAGI = 20000.0 + (1./2.)*4000.0 + 1000.0 [AGI + half of the social security benefit + tax-exempt interest] = $23000.0
Since John's RAGI is below $25000.0, the $4000.0 social security benefits are not taxable
Taxable income = 20000.0 - 6300.0 - 4050.0 [AGI - Standard Deduction - Exemption] = $9650.0
John's taxable income is $9650.0 and he is in 15% tax bracket
Tax = 9275.*0.1 + (9650.0 - 9275) * 0.15 [First $9275 is taxed 10% rate and remaining is taxed 15% rate] = $983.75
Example 2.
John, filing status single, has AGI $30000.0 in 2016. Assume that he has received $4000.0 social security benefits and has $1000.0 tax-exempt interest. His RAGI is $33000.0.
RAGI = 30000.0 + (1./2.)*4000.0 + 1000.0 [AGI + half of the social security benefit + tax-exempt interest] = $33000.0
Since John's RAGI is above $25000.0 and below $34000.0, smallest of following two amounts is taxable for the social security benefits:
That is, $2000.0 of social security benefits is taxable and that need to be included in AGI
AGI = 30000.0 + 2000.0 = $ 32000.0
Taxable income = 32000.0 - 6300.0 - 4050.0 [AGI + - Standard Deduction - Exemption] = $21650.0
John's taxable income is $21650.0 and he is in 15% tax bracket
Tax = 9275.*0.1 + (21650.0 - 9275) * 0.15 [First $9275 is taxed 10% rate and remaining is taxed 15% rate] = $2783.75
Example 3.
John, filing status single, has AGI $23000.0 in 2016. Assume that he has received $18000.0 social security benefits and has $1000.0 tax-exempt interest. His RAGI is $33000.0.
RAGI = 23000.0 + (1./2.)*18000.0 + 1000.0 [AGI + half of the social security benefit + tax-exempt interest] = $33000.0
Since John's RAGI is above $25000.0 and below $34000.0, smallest of following two amounts is taxable for the social security benefits:
That is, $4000.0 of social security benefits is taxable and that need to be included in AGI
AGI = 23000.0 + 4000.0 = $ 27000.0
Taxable income = 27000.0 - 6300.0 - 4050.0 [AGI + - Standard Deduction - Exemption] = $16650.0
John's taxable income is $16650.0 and he is in 15% tax bracket
Tax = 9275.*0.1 + (16650.0 - 9275) * 0.15 [First $9275 is taxed 10% rate and remaining is taxed 15% rate] = $2033.75