It should be noted that the thresholds for figuring up your taxable Social Security were deliberately excluded from adjustment from inflation. The idea was to gradually introduce the taxation of Social Security until eventually nearly everyone would have to pay some tax on their benefits. This tax is getting to be a larger and larger portion of the funding for Social Security. It’s a pretty easy tax to avoid with a little planning. Roth IRA distributions are not included in the provisional income calculation so it is quite possible to have a six figure income and still pay no taxes.
Ok but why was it designed to phase itself out? Because the people who wrote the law would be dead by then and receive the full benefit? What was the logic behind that?
@@onlywenilaugh6589 Or follow the instructions for Form 1040 and any other forms you file. There is a worksheet in the 1040 instructions that lets you easily calculate how much of your social security benefit is included in taxable income. Note that taxable does not necessarily mean taxed. The reason for that is that you subtract your deductions (standard or itemized) from taxable income to get your income that is actually taxed. For a couple with both aged 65 or older in 2024 that files jointly the standard deduction is $32,300. So that couple has no tax liability if their taxable income is less than $32,300 in 2024. For most retirees federal taxes are not particularly difficult or complex if income sources are limited to social security, pension and distributions from pretax accounts (401K, 403B, IRA, etc.). Things get a bit more complicated if you have dividends and capital gains because you have to file an extra form or two and use the dividends and capital gains worksheet to figure your tax, but it isn't difficult. Just follow the instructions for form 1040 and for any additional forms you might require (schedule B, schedule D, etc.). In my opinion, the only time you might want to use a "tax professional" is if you have things like business, partnership, rental or other income other than basic retirement income sources listed above.
James - I love your content. I would like to point out that, starting in 2022, Colorado no longer taxes Social Security benefits for people 65 or older. They still have a $24k deduction for pensions, annuities and IRA withdrawals.
Wow . Someone who really explained how ss and taxes work in a smimple step by step peocess . It seems many try to make it more complicated than it has to be .
Thank you very much James. I have watched videos and read articles on how social security is taxed, and they were all confusing, until now. Your video is very, very explanatory.
The other thing to know is that your SS "benefit" is your total benefit, i.e. gross before Medicare premium is deducted. So yes, you can end up paying taxes on the portion of your SS benefit that is pealed off to pay your Medicare premium.
Your video was definitely point on. But as a person who worked my whole life was receiving a healthy pension and my wife work a whole life and is also receiving a pension I was curious how social security would text me because this year I had to pay the government an additional $28,000 on top of the $4,000 overpayment I gave them and the taxes that were coming out of my check all along. So to make a light of your video if I was a migrant coming into this country I would receive more money and pay less taxes than somebody like me who worked my entire entire life!!!. Great job and explaining it I can't wait to get back to my account and see why I had to pay so much money this year thank you so much
Those earning less than $100K/ year (over 60% of workers) don't stand a chance. Between not understanding how to effectively contribute to Roth v Traditional + something in a brokerage, all while paying increasing costs of living, puts them (intentionally on the part of the tax man) in a position in which they are likely to get completely wiped out by taxes in retirement. Thank you James for posting these videos, especially for those who cannot afford a CFP and are trying to make the right decisions during their working life.
That's great explanation why CFP and CPAs are telling for years that Taxes are going Up especially for those who are not realizing why and what's causing it. That how more and more Social Security Income is being automatically Taxed as designed of course for those who diligently saved and invested. 50-85% of Social Security Income is Taxed and inflation has no impact as designed for years. Sweet! ❤😂
I am a huge fan. You have great content. 1 thing though, when figuring prov.income 0-25000=0% 25000-34000 =50% 34000+ =85% In your example after inflation you are 2610X50%=provisional inc =1305, NOT 2610. That's the way I learned from Josh Scanlon. I do like your stuff, I just in this situation you missed this. Or else I missed it. It's possible😊
Fewer people have their SS income taxed because the provisional income threshold remained the same. This seems counterintuitive to me. Wouldn’t this cause more of your SS to be taxed as inflation adjusts?
He said it correctly but it is confusing. Each year, fewer people have less of their SS benefits taxed, meaning each year greater people have more of their SS benefits taxed.
When you and your company pays the 15,3% of my lifetime income to Social Security I do not consider it a benefit. But I love your videos and also your podcast. They are great straight forward and helpful thank you.
It is somewhat difficult to describe concisely, but in other words... There are several ~tiers~ of provisional income which result in more or less of your Social Security being taxed. The higher your provisional income, the more of your Social Security is taxed. Since the thresholds are not adjusted for inflation, like normal tax rates or retirement account contribution limits, more and more people over time are subject to having more of their Social Security taxed (50% rather than none, or 85% rather than 50%).
Could you do a video or answer a question on Railroad Retirement. Specifically how is Tier 1 taxed on NSSEB/SSEB. I believe Tier 2 is just like a pension and taxed at your federal rate.
It’s too bad, that in 2023, there isn’t a very user friendly, simple app whereby one could plug in 3 or 4 numbers and have the specific info they’re looking for. Amazing how something so pervasive, so applicable to 99% of everyone, isn’t easier to calculate. That said, thank you for making as easy as you can given the tools you/we have.
Correction, you said that regular income is taxed at 7.65% but Medicare is taxed @ 1.45% which is unlimited & SSA is taxed at 6.2% up to an amount which changes per year, totally 7.65% A small change but worthy of mention for those of us still working beyond full Social Security age.
I have watched several RU-vid videos and read several websites, all claiming to address how social security benefits are taxed. They all seem to gloss over one KEY fact. If your provisional income is high enough to result in a tax on your benefits, only the portion of your provisional income over the limit is taxable. If I take the example used in this video after the COLA adjustment and plug it into the IRS Interactive Tax Assistant, it will tell you that, of the $32,610 in social security benefit received, the portion taxed is only $653. That’s 50% of the difference between the provisional income of $26,503 and the threshold of $25,000. As one other person mention, I believe Josh Scandlen has explained this in one of his videos. Do I have this wrong? If not, why isn’t this addressed in any of the videos on this topic. It seems like the video is horribly incomplete without it.
@Root financial Hi James would you please make a video of living in retirement at tax free state vs state tax. TIA. I enjoy your videos and also learning from it 😊
Did he ever make this? I recently moved to Washington state because of no state income tax. I work remote and by doing this, i no longer pay state income tax (my employer is in Oregon). It is nice that i can make the 20 minute drive back to oregon to avoid sales tax. (I think a lot of people have done this, considering $600k only got me a 3 bedroom townhouse in WA)
Not advice: As I understand it Withdraws from Roth accounts are not considered Provisional income. Also for estate planning, I was told by a lawyer that traditional 401K and IRA have heavy inheritance tax placed on distribution if you need to put the money in a trust (For example special needs trust). This information lacking in most information you find on the web. If your money is going into a trust please talk to a CPA and an attorney. If you have a special needs dependent you may need to do this early.
Social security is taxed because it's income, and governments tax income. What can you do to minimize the tax? The same thing you to do minimize any other income-based tax; reduce your income.
@@ordinaryhuman5645It is a way to transfer money from the Social Security trust fund to general revenue and reduce benefits for high income recipients. The byzantine formula tells you there is more involved than simply taxing income
SS was taxed as part of the 1983 bi-partisan effort to save SS. It is supposed to lower the SS benefits for the rich by taxing them and returning this money back to the SS Fund.
When you reach the thresholds, does it mean your entire social security benefit is included in the calculation? I’m other words, does making one extra dollar cause the entire percentage to be added to taxable Income?
I have the same question. I suspect it is a trigger that once crossed all of the social security received that tax year would be taxed at 85% (for example ) as soon as that last dollar crosses the threshold. I'll plan for that as a worst case until I can info otherwise.
No and that is what he fails to explain. Thresholds are much like tax brackets. You don’t apply the whole number. It’s only the portion that falls in between the brackets or in this case, the thresholds.
This was great. Very understandable! Here are questions I am trying to understand about Social Security and taxes: It's about what happens when you work while collecting. I had to start collecting at 62 because I'd lost my job and could only find part time work. I've since found more part time work so my annual income is over what is allowable to earn while on Social Security. I had been told though, that even though you pay a steep penalty, since you are also paying FICO taxes on income, that it should raise your monthly benefit. But I haven't seen that happen. Is that even true? I've also read that sometimes they miscalculate what your benefit should be; how would I find someone to double check my benefit to make sure I'm getting all I should? Thank you!
Yes sometimes they can miscalculate your benefit so it’s good to double check. You do end up getting some of the benefit back that they withheld after your full retirement age
80% of the PRODUCTS I purchase each year are Produced By workers in other countries. Question, Do these diligent workers PAY our Social Security Taxes?
My goodness between fed and state sales real-estate gas ss do people in certainstates like me paying half our income to taxes. So why amount to something the government takes it and passes it on to wastefull
Good to know. I'll try to keep my cap gains, int and divs @25K or below so my S20K SS is not taxed. If that's correct. And maybe favor qualified divs over ordinary income.
You talked about tax free bonds being added into your provisional income. How about Roth distributions? I’m a couple of years from 65, which is when I plan to leave my job. I don’t plan to start taking SS until 67, which gives me a couple of years of low income in which I could convert some of my traditional IRA to Roth. My retirement income will not be over a 22% tax bracket. My SS income will be ~$32,000. It looks like, if Roth is not added back to provisional income, it would be worthwhile to do a lot of Roth conversions, up to the limits of the 24% tax bracket. Thanks for the info, it looks like I’ll have to research this some more!
Why does the 0% bracket for provisional income go from a max of $25,000 for a single person to $32,000 for married filing jointly? That's only a 24.5% increase. Whats the logic behind that?
Not really a benefit as SS should never get taxed since you pay into it your entire life. But since it is, might as well make the best of it eh. Just like the government, force you to pay into a system that then taxes you later when you need that money. And the waste is terrible. And so much for tax free interest, since it plays a role in whether your SS is taxed and at what level. So it's really a tax for some.
I saw a news about Missouri becoming the 40th state that does not tax the social security, starting 2024. Does that apply to all social security incomes for all seniors?
That is simply not accurate. The top 10% of earners paid 76% of the taxes according to the most recent stats. Look it up. There may be one individual in one certain year that did not pay taxes due to prior year carry over losses, but the big picture shows that the rich pay for almost everything. I do agree it is ridiculous we are taxed on SS.
Ok Help here Married couple we get $4136 and $1655 combing SS also a small $600 Pension living in Pennsylvania and have $850,000 cash under the pillow Forgot we are 70 and 76
What a racket. You pay into this scheme your entire working life and when it comes time to draw on all your hard work, the pukes still want to tax you.
