Demystifying Income Tax on Social Security Payments

TLDRLearn how income tax works on Social Security payments and understand the three-test system used by the Social Security Administration. Discover the thresholds for single and married individuals and how to calculate your combined income. Find out if you owe taxes on your Social Security payment and explore the three tests to determine the taxable amount.

Key insights

🧮Income tax on Social Security payments follows a three-test system to determine the taxable amount.

💰The SSA uses combined income, which includes 50% of your Social Security income, tax-free income, and adjusted gross income, to calculate your tax liability.

📈The thresholds for taxable Social Security income have not changed since 1983, resulting in more people owing taxes on their Social Security payments.

🔍Calculate your combined income to determine if you owe taxes on your Social Security payment using one of the three tests outlined in the video.

💡Future modifications to the Social Security system may result in updated thresholds for taxable Social Security income.

Q&A

How is combined income calculated?

—Combined income is calculated by adding 50% of your Social Security income, tax-free income, and adjusted gross income.

How do I know if I owe taxes on my Social Security payment?

—You need to calculate your combined income and compare it to the thresholds provided by the SSA for your filing status.

Have the thresholds for taxable Social Security income changed over the years?

—No, the thresholds have remained the same since 1983.

What are the three tests used to determine the taxable amount of Social Security income?

—The three tests are: 1) 85% of your Social Security payment, 2) 50% of your Social Security payment plus 85% of your combined income over the second threshold, and 3) 50% of your combined income over the first threshold plus 35% of your combined income over the second threshold.

Is there a possibility that the thresholds for taxable Social Security income will be updated in the future?

—Yes, as the Social Security system undergoes modernization, it is likely that the thresholds will be adjusted to address future financial challenges.

Timestamped Summary

00:00Income tax on Social Security payments is often misunderstood.

00:32The SSA uses combined income to determine tax liability.

03:15Thresholds for taxable Social Security income have not changed since 1983.

04:45Calculate combined income to determine if taxes are owed.

06:40Future modernization of the Social Security system may result in updated thresholds.

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