Social Security taxation due to RMD | Ed Slott and Company, LLC

Social Security taxation due to RMD

Clients 2018 RMD will push them over income threshold subjecting Social Security benefits to partial taxation.

How does the taxation work? For example if their income is one dollar over the AGI is a portion of their Social Security benefit tax at either 50% / 80%? Or is the benefit subject to taxation prorated?

Thank you

When a threshold (either the 50% of 85% of gross SS income) is passed, every extra dollar of taxable income drags either 50% or 85% of the amount of SS income over the threshold into taxable income. Often, this is expressed in a tax rate depending on what nominal bracket you are in. Client may be in the 12% bracket, so these taxable SS dollars result in a marginal rate of 1.5 X 12% or 18%, or if the client income rises into the 85% of SS income tier, then 1.85 X the marginal bracket rate. Eventually, the client could be in the 22% bracket and 1.86 X 22% = 40.7%. Very few people use the tricky SS worksheet any more, as it is easier to enter various income scenarios into a tax program. Note that SS taxation is gradual on each additional dollar, not like IRMAA for higher income Medicare beneficiaries, where once you pass a threshold, your entire Medicare B and D premiums are surcharged.


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