Social Security Taxation

How to Potentially Reduce or Eliminate
the Tax on Your Social Security Income

Social Security
Since 1983, up to 50% of your Social Security Benefits can be taxed.  In 1993, tax laws were passed that increased that percentage from 50% to 85% if provisional income exceeds certain amounts. 
I.R.C. Sec. 86 et seq. (2002).


What Is Included in Provisional income?
Income from all sources EXCEPT a deferred annuity.  Interest from a deferred annuity is EXCLUDED from provisional income. *
*Deferred annuities accumulate tax-deferred interest that is not included as Provisional Income.  Below is a chart comparing deferred annuities against other income sources. 

  YES NO
DEFERRED ANNUITY   R
Pension R  
Income from Mortgages R  
US Treasury Bill R  
Certificates of Deposit R  
Money Markey Accounts R  
Passbook Savings R  
Credit Union Savings R  
Dividends - Stocks/Mutual Funds R  
Capital Gains R  
Annuity - Withdrawals R  
Wages R  
IRA Withdrawals R  
Tax Exempt Interest R  
Social Security R  

 


EXAMPLE ONE

Pension $18,000
Taxable Interest $18,000
Social Security Taxed $10,200
Total Income $46,200
Income Tax on Social Security $2,661
Income Tax on Remaining Income $3,776
TOTAL FEDERAL TAX $6,437*

*Tax amounts are based on 2002 Federal tax tables for a single person age 65 and over with no dependents and taxable income of $37,350.

 

EXAMPLE TWO

Pension $18,000
Annuity $0
Social Security Taxed $0
Total Income $18,000
Income Tax on Social Security $0
Income Tax on Remaining Income $1,076
TOTAL FEDERAL TAX $1,076**

**Tax amounts are based on 2002 Federal tax tables for a single person age 65 and over with no dependents and taxable income of $9,150.

 

You save $5,361 per year in SPENDABLE INCOME!

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Information on this page is printed with permission from Asset Protectors & Advisors Group.  Copyright 2006
Copyright 2007 Flexible Benefits Agency, Inc.