How Does the Taxation of Social Security Benefits Work?
Before 1984, Social Security benefits were exempt from taxation. Today, those with higher incomes must pay personal income tax on their Social Security benefits (see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits, or Social Security Administration 2009). Those with less than $25,000 of “combined income” per year for a single person (including heads of household, usually unmarried people with dependents) or $32,000 per year for a married couple filing jointly do not need to pay any tax on their Social Security benefits. • “Combined income” is defined as adjusted gross income (AGI) plus nontaxable interest plus half of OASDI benefits. • Most married people who file their taxes separately from their spouses need to pay taxes on their OASDI benefits. Those single people with combined income between $25,000 and $34,000 per year and those married couples filing jointly with income between $32,000 and $44,000 may need to pay tax on up to half their benefits.
