 looking at the income tax formula we're focused in once again line one that being income remembering that the first half of the income tax formula is in essence an income statement although a strange one where we have income up top the equivalent of the expenses being the deductions getting us down to the equivalent of net income that being here taxable income our goal being the opposite of normal goals because it's taxes that being to have the taxable income as low as possible therefore when looking at line one we want to determine is something income if it is income is it something that we have to include as taxable income now we're talking about the social security benefits at this point in time quick recap on a couple things on the social security benefit program obviously there's two sides that we usually think about one being our working years where the social security taxes are bad because we have to pay them into the system and that's going to be the social security we usually kind of clump them together with social security and medicare type of payments that we're paying they're coming out of our w2s wages or and or they're coming out of our social security self-employment taxes that we might pay if we have a sole proprietor type of business and then in retirement years we might get distributions from the plan that's what we're talking about now because now money is coming in there's all this new money coming in and it's not in and we're thinking is it something that we have to include in income now just notice that social security is a little bit strange because you might think hey look i already kind of earned the income and then i paid it in to the social security program and now i'm getting it back so let's just do a quick kind of recap on the structure or how social security came about and then we'll get into the taxation applied to it and it might make a little bit more sense you might be able to kind of get a story which will help you to memorize the way the taxation is going to work so when social security was put in place it was it happened like in the 1930s in the great depression with when a lot of these laws came into play and a lot of people i think when it first came into play thought of it more as kind of a welfare program meaning we're going to be helping the people that are not able to pay for their own retirement possibly because they lived past their life expectancy or they had some type of tragedy happened and therefore when you're paying into that kind of program your general thought process is i don't expect to be benefiting from this program i expect it to be just benefiting the people that need this program it's a welfare type of program kind of system however then it seems to have morphed over time so that the taxes have going up and up and it's now kind of thought of they're kind of advertising it from the government standpoint as though it's like a government retirement plan employment and a 401k retirement plan which would then think that everybody no matter how much income you have would get benefits from it which is kind of the system that is going to be set up meaning we're putting money in and the more money you put in if it was just a normal kind of retirement plan you would think the more benefits you should get in the payout when they pay out the benefits so now we've got this kind of mix between those two objectives so the more money you put into the system during your working years which means you're going to put more in if your income is higher because it's it's you're going to have a higher tax that you're going to be paying as your income goes up then your benefits will go up in general the calculation of your benefits will take into consideration that you paid more in however it also has some welfare components meaning that the more income you put in on the higher side of things the less added benefit that you're going to get from those payments right and so you're actually so that so that's how kind of the benefit payments kind of are calculated in general and then when you get the payments they can also kind of put in play this mix between the payments being a welfare program versus a retirement program and basically saying if your income is below a certain threshold then you may not be taxed you might have an exemption of the taxation of of these payments but if your income is higher then they're going to tax more of the of the income that you got from the social security up to 85 percent I believe that's the general rule okay so we're going to be focused focus focus focus in on the social security which is down here on line six of page one of the form 1040 if you look at the actual tax software then it'll it'll give you this kind of worksheet to determine how much of the of the social security is taxable the general question that will come up is you know if I get social security how much of it is going to be taxable that's how much do I have to include as taxable income and the general rule is going to be well if you have a substantial amount of taxable income in your retirement years it's going to be up to 85 percent that's what you want to kind of keep in your mind as the general rule that you're going to be paying like at up to 85 percent of the of the the social security so and remember when you're talking about social security payments you're usually talking about people that are in of course their retirement years and they're getting the social security payment so you would expect then they wouldn't have a lot of w2 income at that point in time you would expect they're not at their peak working years in terms of earning years so you might deal with taxpayers at that point in time where the social security is there is like their main form of income or they might have other things that they're depending on to live on that aren't taxable which means you're talking about people that might have a lower tax taxable amount or you might be talking to more well-off individuals who may not have w2 income at that point but they still have a substantial amount of income coming from an out of like ira's 1099 ours and from investments in the form of dividends and interest and in that case you would expect they would be beating tax at the max of their social security benefits 85% included in income that's not the rate that's how much you'd have to include in income to then be subject to the tax rates in the progressive tax system or ordinary tax rates okay so you will pay tax on only 85% of your social security benefits based on the internal revenue service irs rules if you this is from the social security website by the way instead of the irs website i'll file a federal tax return as an individual or your combined income is between 25 000 and 34 000 you may have to pay income tax on up to 50 percent of your benefits more than 34 000 up to 85 percent of your benefits may be taxable so generally if your income is a little bit lower then you might be paying up to 50 percent but if your income is you know significant still a fairly low bar then you're going to be paying you know up to 85% included in income file a joint return uh and you and your spouse have a combined income that is now we're talking about a married filing joint between 32 000 and 44 000 you may have to pay income tax on up to 50 percent of your benefits more than 44 000 up to 85 percent of your benefits may be taxable if you're married filing separate returns you probably pay taxes remember that married filing separate that the government is often skeptical of that filing position people taking it possibly in order to try to take advantage of some of these income threshold rules so they often adjusted in an unfavorable way for those filing married filing separate so be aware okay so line 6 a 6 b and 6 c line 6 a 6 b social security benefits uh you should receive a form s s a 10 99s that's the type of form that that you're going to be receiving it's a 10 99 type form which is an indication of saying oh this might be income that i have to be reporting just like other types of 10 99s showing in box three the total social security benefits pay to you box four will show the amount of any benefits you repaid in 2022 if you received railroad retirement benefits treated as social security you should receive a form uh rrb 10 99 use the social security benefits worksheet in these instructions to see if any of your benefits are taxable so exception do not use the social security benefit worksheet in these instructions if any of the following applies you made contributions to a traditional ira for 2022 and you or your spouse were covered by a retirement plan at work or through a self-employment instead use the worksheet on publication 590 a to see if any of your social security benefits are taxable and to figure your ira deduction