Benefits that originate through Social Security are free for many individuals. However, some recipients of Social Security must pay taxes on up to 50 percent or 85 percent of their benefits. Calculating your provisional income is essential to figure out your tax status in terms of Social Security. You can determine your provisional income by performing some basic calculations that begin with your gross income, which is the total amount of money that you make.
1. Write down your gross income, not counting Social Security benefits. For example, you might gross $20,000 per year.
2. Add any interest, benefits or exclusions that are tax-exempt. For example, you might have earned $1,000 in interest on a municipal bond. You would add this to $20,000 to get $21,000.
3. Multiply your Social Security benefits times 50 percent, and add the product to your previous total. For example, if your Social Security benefits are $15,000, you would multiply 0.5 times 15,000 to get $7,500. Add this to $21,000 to get a total of $28,500.
4. Determine your tax status from the overall total. If your provisional income is less than $25,000 for single or head-of-household returns, or $32,000 for joint returns, then your Social Security benefits will not be taxed. If your provisional income falls between $25,000 and $34,000 for single or head-of-household returns, or between $32,000 and $44,000 for joint returns, then up to 50 percent of your benefits can be taxed. If your provisional income is greater than $34,000 for single or head-of-household filing, or $44,000 for joint filing, up to 85 percent of your benefits can be taxed.
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