When you receive your Social Security benefits, you do not have to pay FICA taxes on the amount you receive, but you may have to include the benefits as part of your taxable income for the year when you file your federal income tax return. Knowing how much you can make before having to pay taxes helps you plan your income for the year to avoid the taxes or to budget for the income taxes on your benefits.
Combined Income Limits
Part of your Social Security becomes taxable when your combined income for the year exceeds the annual limits for your filing status. As of 2011, when you file as single, none of your Social Security benefits are taxable if your combined income falls below $25,000. Half of your benefits may be taxable when your combined income falls between $25,000 and $34,000, and up to 85 percent of your benefits may be taxable when your combined income exceeds $34,000. When you file a joint return, none of your Social Security benefits are taxable if your combined income falls below $32,000. Half of your benefits may be taxable when your combined income falls between $32,000 and $44,000, and up to 85 percent of your benefits may be taxable when your combined income exceeds $44,000.
Calculating Your Combined Income
For the purposes of figuring your Social Security benefit taxability, you need to figure your combined income from your adjusted gross income, nontaxable interest and Social Security benefits. Divide your Social Security benefits by 2 and add the result to your adjusted gross income plus any nontaxable interest. For example, if you have $12,000 in Social Security benefits, $10,000 in adjusted gross income and $1,000 in nontaxable interest, divide $12,000 by 2 to get $6,000 and add $6,000 plus $10,000 plus $1,000 to find your combined income equals $17,000.
Adjusted Gross Income
Your adjusted gross income equals the difference between your total taxable income and any adjustments to income you claim on your tax return. However, if you receive Social Security, you are unlikely to qualify for any adjustments to income. Examples of adjustments to income include health insurance if you are self-employed, moving expenses for job-related moves and traditional IRA contributions. You can find your adjusted gross income on Line 4 of Form 1040EZ, Line 21 of Form 1040A or Line 37 of Form 1040.
Reporting Taxable Social Security
If your combined income falls into a bracket where part of your benefits are taxable, use Worksheet 1, Figuring Your Taxable Benefits, found in IRS Publication 915, to calculate the taxable portion of your benefits. If any of your benefits are taxable, you must use Form 1040 or Form 1040A to file your taxes. On Form 1040, your taxable Social Security benefits go on Line 20b and on Form 1040A, your taxable Social Security benefits go on Line 14b.