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Congress has gone out of its way to make the tax treatment of Social Security benefits complicated. But don't let that confusion lead you to overpay your tax.
You should have received a report from the Social Security Administration showing just how much you got last year. It's called Form SSA-1099. But I can guarantee you this: Not every dollar reported there is taxable, and it's up to you to figure out how much is taxable and how much is tax-free.
For most beneficiaries, in fact, 100% of the benefits are totally tax free. But about 12.5 million retirees and other recipients -- about one in four -- owe federal tax on part of their benefits.
Where you stand depends on your "provisional income." That's basically income from a job and taxable investments plus any tax-free municipal bond income and 50% of your Social Security benefits.
If the total is less than $25,000 if you file a single return or less than $32,000 if you file a joint return, your benefits are tax free. If your income is higher, part of your benefits will be taxed -- but never more than 85%.
Take the time to fill out the worksheet that you'll find in your tax instructions to see exactly how much you have to report. And, no matter how much you report to the feds, don't assume you have to report the same amount to your state government. Check to see if your state offers any special breaks.
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