Personal Finance (Not Investing) • How would you project taxes in retirement

At $44k provisional income (half SS + other income) is where the 85% begins to kick in from previous 50%. But it's a gradual ride up to fully 85% of SS taxation.

Take half SS, add other income. If MFJ, compare to $32k and $44k. The portion under $32 k is zero taxable. The portion between $32k and $44k is 50%, and the portion over $44k is 85%. Add up the parts. Then compare to 85% of your full SS benefit - this would be the max.

So in your example, with provisional income at exactly $44k, you get
$0 + 50% * ($44k - $32k) + 0 = $6k taxable SS.

If you have $1k more in other income, it becomes
$0 + 50% * ($44k - $32k) + 85% * ($45k - $44k) = $6850 taxable SS.

If you have $1k less in other income, it becomes
$0 + 50% * ($43k - $32k) + 0 = $5500 taxable SS.

You would hit the max of 85% of $28k SS at around $65k provisional income, so around $51k other income. Beyond this point, your taxable SS does not increase.

Thank you for this explanation. I found it much clearer and concise than the wiki and other online resources.

If you have time for a quick follow up question. According to this heat map a single filer over 65 with 20K of income and 20K of SS income, would face a 15% marginal tax rate--which I take to be the 10% bracket plus 50% of SS is taxable (so for every additional dollar of income an additional SS dollar adds 50 cents to the amount being taxed at 10%--adding 5% to the marginal rate).

But what if most of the $20K income is qualified dividends (say $15K). Am I right that taxation of SS benefits doesn't change but that most of the income switches from the 10% tax bracket to the 0% LTCG tax bracket? So they would face a 5% marginal tax rate rather than 15%?

Single thresholds are at $25k and $34k instead of $32k and $44k. For provisional income purposes, you include all your non-SS income, including nontaxable interest. Half of SS is $10k, plus other income of $20k = $30k.
0 + 50% * ($30k - $25k) = $2500 taxable SS.

Then on your tax return you list $2500 SS income, $5k OI, $15k LTCG income. Which looks to me as zero tax, after the standard deduction.

If the other income were all OI, you have $2500 + $20k = $22500 AGI before standard deduction.

So in both cases the full $20k other income increase the amount of SS that is taxable, but the makeup of that other income affects how that part itself is taxed further down on the return. More LTCG will push up taxation of SS, and enough could push the LTCG themselves above the zero threshold. You could, in theory, get a double whammy where more other income pushes more SS taxable (effectively 1.5* your bracket, or 1.85*), and that pushes LTCG into 15% too.

Statistics: Posted by teen persuasion — Mon Jan 22, 2024 7:48 am — Replies 37 — Views 2432

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