AARP sent out an email saying I should check my withholding amount on pension income due to the new income levels and tax law changes. I tried the IRS calculator but I am confused. I have to pretend my pension income is a job so I did. If I include my SS income too I am way underpaying but not all my SS income is taxable. So do I just include the amount that was taxable last year, since it changes every year according to deductions, variable income, etc., which I guess are not longer allowable?
I figured it two different ways - once without SS income and I would be overpaying and once with it and I would be underpaying so I am hoping the real number is in between.
Has anyone figured this out?
The simplest way to do this is to look at your prior year tax returns and determine the percentage of your social security that was taxable those years. Per IRS rules, you will either pay tax on 0% of your social security benefits, 50% of your benefits, or 85% of your benefits.
If your 2017 tax return shows that 50% of your benefits were taxable, use only half of your 2018 benefits when using the IRS calculator. If 85% was taxable last year, use 85% of your 2018 benefits. You may want to check 2016 and 2015 percentages as well, just in case the 2017 tax year was an anomaly. Best of luck!
Ok, 2017 was an anomaly because I took some money out of an IRA so I will need to go back to 2016 for a normal year. If I remember correctly only about 15% of my SS is normally taxable. I will add in that amount of the new amount of SS income. Thanks.
Please double-check that amount, as there is no bracket for 15% being taxable. If any is taxable, it is either 50% or 85%.
Could it be that 15% is non-taxable, leaving 85% taxable? Line 20a of your 1040 form will show your total social security, and 20b will show how much is taxable. (If you file a 1040A, use lines 14a and 14b.)