How do i calculate my taxable social security benefits 2023
Introduction:
Understanding how your Social Security benefits are taxed can be quite confusing. But having an idea of how much of your benefits will be taxable is crucial for budgeting purposes. In this article, we will explain the steps necessary to calculate your taxable social security benefits for 2023.
Step 1: Determine Your Combined Income
The first step to calculate your taxable social security benefits is to find your combined income, which is the sum of the following three components:
1. Your adjusted gross income (AGI): The total of all your income, excluding Social Security benefits.
2. Nontaxable interest: This includes interest earned from tax-exempt bonds or other tax-free investments.
3. Half of your annual Social Security benefits.
Combined Income = AGI + Nontaxable Interest + (50% of Social Security Benefits)
Step 2: Compare Your Combined Income to the Thresholds
Once you’ve calculated your combined income, you must compare it against the income threshold limits based on your filing status. The thresholds determine the percentage of your Social Security benefits that may be subject to tax.
For 2021, the income thresholds are as follows:
– Single filer or Head of Household:
– $25,000 – $34,000: Up to 50% of benefits are taxable
– Above $34,000: Up to 85% of benefits are taxable
– Married filing jointly:
– $32,000 – $44,000: Up to 50% of benefits are taxable
– Above $44,000: Up to 85% of benefits are taxable
– Married filing separately:
– Below $25,000: No taxation
– Above $25,000: Up to 85% of benefits are taxable
Step 3: Calculate Your Taxable Social Security Benefits
After determining which income threshold you fall into, use the following guidelines to calculate the taxable portion of your Social Security benefits:
– If your combined income falls below the lower end of the threshold for your filing status, your benefits will not be taxed.
– If your combined income falls within the 50% tax range for your filing status, you will need to pay tax on half of your Social Security benefits (up to 50%).
– If your combined income exceeds the higher threshold for your filing status, up to 85% of your Social Security benefits will be taxable.
Conclusion:
Calculating taxable Social Security benefits can seem overwhelming at first, but breaking it down into these three simple steps makes it more manageable. By understanding how much of your benefits may be subject to tax, you can better prepare yourself for budgeting and financial planning in 2023.