I'm filing an amended return. The 1099-R I added is $8,000, yet Line 1 changed by $14,800. Why is this taxable when I am below the over age 65 for the $6K tax break?

[nancylhassett]

We are over age 65. Line 1 went from $38,472 to $53,272, even though I only added $8,000. Taxable income went from zero to $6572. Why?

[Vanessa A]

Is this for state taxes?  If so, which state?

[dmertz · Accepted solution]

This $8,000 of additional taxable income caused an additional $6,800 (85% of $8,000) of Social Security income to become taxable, for a total change in AGI of $14,800.  This side effect is commonly referred to a the "tax torpedo" and happens when your income is in the range where each dollar of other income causes an additional $0.85 of Social Security income to become taxable.  You continue to be in this range until fully 85% of your Social Security income is included in AGI.

[nancylhassett]

Our income is so low that, after the $12,000 additional deduction for being over age 65, we had zero tax owed. This is why I'm confused. When I completed the amended return on Turbo tax, I immediately questioned the results, because of our low income. (On the original return, $50,000 of social security income ended up being $12,000 taxable) I was able to access a page that compared the original return with the amended return. Both showed zero tax owed. I was on the phone with someone for quite some time, and we think I prematurely accessed the amended return option, because it's not actually supposed to roll out until March 8.

[dmertz]

"On the original return, $50,000 of social security income ended up being $12,000 taxable"

Because your original AGI was high enough for your Social Security income to start to become taxable but not high enough where fully 85% of your Social Security income is taxable, that puts you squarely in the tax-torpedo zone.  The increase in taxable income to $6,572 is exactly what is expected in your situation, so nothing is wrong with the way the amendment was prepared.

Google "tax torpedo."

If you have no tax credits that apply, the taxable income of $6,572 is subject to $658 of federal tax to be paid with your amendment because this income falls in the 10% federal tax bracket.  You may also owe additional state income tax depending on how your state taxes this retirement income and Social Security.

[nancylhassett]

Thank you. I understand what you are saying. Might not like it, but it is what it is. I appreciate your help.