max income before Social security income is taxed

[dlkurelowech9]

My wife and I are retired as of 8/2021. My wife will receive SS next year. I will not, but will live off of retirement IRA's. We file jointly. At what income will we be required to start paying taxes on the SS, and does that income level include the federal tax exemptions ($24400.00)? We live in California.

[xmasbaby0]

TAX ON SOCIAL SECURITY

Up to 85% of your Social Security benefits can be taxable on your federal tax return.  There is no age limit for having to pay taxes on Social Security benefits if you have other sources of income along with the SS benefits.  When you have other income such as earnings from continuing to work, investment income, pensions, etc. up to 85% of your SS can be taxable. 

 What confuses people about this is that before you reach full retirement age, if you continue working while drawing SS, your benefits can be reduced if you earn over a certain limit. (For 2017 that limit was $16,920 —for 2018 it was $17,040—for 2019 it was $17,640— for 2020 it is $18,240; for 2021 it is $18,960)  After full retirement age, no matter how much you continue to earn, your benefits are not reduced by your earnings; your employer will still have to withhold for Social Security and Medicare.

To see how much of your Social Security was taxable, look at lines 6a and 6b of your 2020 Form 1040

https://ttlc.intuit.com/questions/1899144-is-my-social-security-income-taxable

https://www.irs.gov/help/ita/are-my-social-security-or-railroad-retirement-tier-i-benefits-taxable

You need to file a federal return if half your Social Security plus your other income is $25,000 when filing single or head of household, or $32,000 when filing married filing jointly, $0 if you are filing married filing separately.

Some additional information:  There are 13 states that tax Social Security—Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.  These states offer varying degrees of income exemptions, but four mirror the federal tax schedule: MN, ND,VT, and WV

For 2021 the standard deduction for a couple filing jointly will be $25,100 + $1350 for each spouse who is 65 or older.

[Opus 17]

The formula for taxable social security, if you are married filing jointly, is to take half your SS benefit and add your other taxable income.  If that totals more than $32,000, then some part of your benefit is taxed.  At the bottom, it's 50% of your SS benefit, but it can go up to 85% of your benefit.

This is how SS taxation interacts with your standard deduction:

Suppose your SS benefit is $2000 per month or $24,000 per year, and you withdraw $50,000 from an IRA.  Since half your SS plus your IRA income is more than $32,000, then your SS benefit is taxable.  So then we take 85% of the SS benefit and add it to the IRA, so your adjusted gross taxable income is $70,400.  Then you subtract your standard deduction which makes your taxable income $46,000.  That's in the 12% bracket for married filing jointly (and the first $9000 is taxed at 10%) so your tax is about $5340.

California does not tax social security but it will tax your IRA.

If this was a Roth IRA, it would not be taxable income, so it would not make your social security taxable either.  Or to put it another way going back to the formula, if your benefit was $2000 per month ($24,000 per year), then you can withdraw up to $20,000 from a traditional IRA without triggering SS tax.  And the IRA money would be tax-free as well since it would be under the standard deduction.  If you could find a tax-free source of income to supplement your IRA (like a Roth IRA or tax free muni bonds) then you might never have to pay income tax again.