First, individual taxpayers or taxpaying married couples must add up their "modified adjusted gross income." This is their taxable income, plus their tax-exempt income, plus half of their Social Security benefits. If this figure exceeds certain income levels, a portion of Social Security benefits is taxed.
Next, a worksheet is completed to determine the amount of tax due. Under current law, in 2012, the income levels where taxes on Social Security benefits apply are as follows:
• 50% of Social Security Benefits Taxed - $25,000 to $34,000: Single and Head of Household and $32,000 to $44,000: Married filing jointly
• 85% of Social Security Benefits Taxed - Over $34,000: Single and Head of Household and over $44,000: Married filing jointly
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