Taxable Social Security

[PIGLEE]

I just did a tax return, and then compared it if they file as MFS.

I was shocked to find out they would save about 2700.00 to file as MFS.

I printed out all three returns, and discovered the difference was in the taxable amount of Social Security on her return. The reason being that the Social Security Benefits Worksheet has changed the way it is caculated. The change is in line 9. The way the worksheet figures it this year is that for 49,000 of Social Security the taxable amout is only 29,000, when the way it has been figured in prior years 85% would be taxable or 42,000.

In The Tax Book on page 16-9, they have it the was it was taxed last year.

The IRS worksheet is on page 25 of the 1040 instructions.

Has there been a change???? I did not hear about it at any of the Seminars I went to. I called The Tax Book, and they have not gotten back to me yet.

This day has been really crazy, and I really need an answer on this one.

[Brian EA]

[QUOTE=Piglee;55612]I just did a tax return, and then compared it if they file as MFS.

I was shocked to find out they would save about 2700.00 to file as MFS.


Becareful. If they lived together and filed MFS a lot more of the SS is taxable.
Review the return.

brian

[PIGLEE]

They did live together, I marked the return that way, that is why I am so confused with the lower taxable amount.

[BP.]

The change is in line 9. The way the worksheet figures it this year is that for 49,000 of Social Security the taxable amout is only 29,000, when the way it has been figured in prior years 85% would be taxable

The IRS worksheet is on page 25 of the 1040 instructions.

Just had a look at p. 25 worksheet you referenced. Look at line 8: If MFS and living together, it says just skip to line 16, and use 85%.

[PIGLEE]

Line 8 says to skip line 8 through 15: multiply line 7 (which happens to be 50% of your social security) by 85% and enter the result on line 16. Then go to line 17.

Line 17 says to multipy line 1 by 85%

THEN line 18 says to enter the smaller of line 16 or 17.

If you want to test it out SS income was 49623, other income was 10300. She is being taxed on only 29,845, according to my tax program and the IRS worksheet (which I used Fill & Print, looked up the 1040 instruction booklet, and was able to fill it out in the computer).

[Grumpy]

I just did the worksheet by hand for tax years 05, 06, and 07 and came up with the same taxable amount, $29,845, for each year.

[Grumpy]

That was the IRS worksheet from the 1040 instruction booklet that I used.

[Bees Knees]

In The Tax Book on page 16-9, they have it the was it was taxed last year.

The IRS worksheet is on page 25 of the 1040 instructions.

TTB worksheet on page 16-9 is identical to the worksheet on page 25 of the Form 1040 instructions.

Put the two side by side and you will see nothing has changed.

[Bees Knees]

I just compared line by line the worksheet on page 28 of the 2006 Form 1040 instructions with the worksheet on page 25 of the 2007 Form 1040 instructions.

Both are identical, other than references to years, and some Form 1040 line references on line 6.

[FEDUKE404]

I think it's the income

Assuming you are giving zero exclusion (since you said H/W lived together), I think what is causing the confusion is that the overall income is fairly low.

Put in something larger for the "other" income, such as $35k, and you should see the taxable amount approach 85%.

BTW: How the heck did someone get nearly $50k of Soc Sec in one year?!? If for multiple years, you might want to recalculate those prior years!

FE

[PIGLEE]

Thanks

After doing some more checking, and after I did the return in my computer for 2006, 2005 and then in 2002. I will admit that nothing has changed in the tax law. I have been under the impression (for 30 years) that if someone filed as MFS that 85% of their Social Security was taxable, period. This return has blown my mind. I guess I never encounted anything with the numbers that are in this return before.

Thanks for everyone's help, I guess you are never to old to learn something new. I still don't understand why, so maybe it is time to retire.

[FEDUKE404]

Elementary, my dear Watson!

After doing some more checking, and after I did the return in my computer for 2006, 2005 and then in 2002. I will admit that nothing has changed in the tax law. I have been under the impression (for 30 years) that if someone filed as MFS that 85% of their Social Security was taxable, period. This return has blown my mind. I guess I never encounted anything with the numbers that are in this return before.

Thanks for everyone's help, I guess you are never to old to learn something new. I still don't understand why, so maybe it is time to retire.

I really think there are two fairly simple explanations:

1 - The MFS issue means there is no exclusion for the calculation of the taxation of any benefits, as exists with the other filing statuses. That more or less determines where the taxable benefits first "kick in" and can best be seen by doing a H/W return with nothing changed except the Soc Sec benefits in a MFJ situation versus a MFS situation. (I've amended many a return for some "smart" couples who went the wrong route.)

2 - The total other income given in the example is fairly low. Put in a higher number, and the 85% you expected will appear.

BTW: I'm still curious how anyone received nearly $50k of Soc Sec benefits in a single year!! (Time to break out the multiple year allocation procedure??)

FE