As we work through the 2024 tax filing season, we want to make sure that those who are collecting social security income are aware of how it is taxed. If you are self-preparing your return and are one of the tens of millions of people using TurboTax, some returns filed with them are underreporting social security taxable income or sometimes not reporting it at all. This would increase your risk for audit since there is a discrepancy between line 6a of your IRS Form 1040 (line where you put in the total social security benefits) and line 6b of the IRS Form 1040 (line where you put in the taxable portion of your Social Security benefits). If you are working with a CPA or other tax professional, you shouldn’t have anything to worry about. Most tax professionals pay an arm and a leg to have top-of-the-line software that can catch discrepancies between the tax code and the data input in their software to highlight potential audit risks before they file a tax return. Tax professionals also have a deep working knowledge of the tax code and can report and override these errors to their software provider they use so that they do not occur in the future.

I’m not saying that TurboTax is bad software (I use it to file my personal taxes), but any software can have errors. We’re just writing this piece to make sure that you are cognizant of your income sources and how they are taxed.

For example, if you live in any one of these states:

1. Colorado
2. Connecticut
3. Minnesota
4. Montana
5. New Mexico
6. Rhode Island
7. Utah
8. Vermont
9. West Virginia

Congrats! Social security income is taxable in your state. If you do not live in these states (or in the District of Columbia), social security income is not taxed. Each of those nine states have their own rules around how social security income is taxed, so we recommend that you verify with your state’s taxing authority on how the tax is calculated and if it is applicable in your situation.

Social security is taxable federally, but the rules aren’t straightforward. To determine the taxation on your social security benefits, take half of the social security money earned during the year and add it to your other income. Other income is defined here as any pension income, wages earned, interest (taxable and tax-exempt), dividends, and capital gains. Once you have that total figure, there are three different percentages to be aware of. 0%, 50%, and 85%. Now take your filing status and use one of the two following tables to determine how much of your social security benefit is federally taxable.

For Single Filers, Married Filing Separately, Qualifying Widow(er), or Head of Household

Total Income Range	Percentage of Social Security Benefits that are Taxable
$0 – $24,999	0%
$25,000 – $34,000	50%
$34,001 or greater	85%

For Married Filing Jointly

Total Income Range	Percentage of Social Security Benefits that are Taxable
$0 – $31,999	0%
$32,000 – $44,000	50%
$44,001 or greater	85%

Something worth mentioning that if you are working and collecting social security benefits, then social security may withhold some of your benefits if you haven’t reached full retirement age (FRA). If you earn more than $23,400 and you are younger than your FRA for all of 2025, social security will deduct $1 from your benefits for every $2 earned above that $23,400 amount. If you reach FRA in 2025 and earn more than $62,160, social security will deduct $1 from your benefits for every $3 earned above that $62,160 amount. This is one reason why we typically don’t recommend taking social security benefits before FRA unless you need to.

Again, there is nothing wrong with using over-the-counter tax preparation software like TurboTax. Just remember that no software is perfect and review the work done by the software to see if it passes muster. Please keep in mind that we are not tax professionals and do not misconstrue anything that we state as tax advice. If you would like to schedule a free consultation meeting to discuss our tax planning capabilities or would like a personalized social security income analysis, please give us a call at 714-282-1566 or email us at financialplanning@bfsg.com.

Sources:

1. https://www.investopedia.com/which-states-dont-tax-social-security-8725930
2. https://www.irs.gov/newsroom/irs-reminds-taxpayers-their-social-security-benefits-may-be-taxable
3. https://www.ssa.gov/pubs/EN-05-10069.pdf
4. https://blog.turbotax.intuit.com/tax-news/turbotax-tax-trends-report-tax-year-2022-lookback-64599/

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