Social Security and Railroad Retirement Benefits

By Dr. John L. Stancil
Tax Analyst, WebTaxCenter.com

If you receive social security or railroad retirement benefits, some of the income may be taxable. Your income level will determine how much, if any, of these benefits are taxable. If you receive social security benefits you should receive an SSA-1099 indicating the amount received, payments for Medicare, and any withholding from your benefits. If you receive railroad retirement benefits this information will be received on an SSA-1042S.

Filing Form 1040 - If your benefits are taxable and you file a 1040, report the amount in box 5 of your SSA-1099 on line 20a of the 1040 and the taxable amount on line 20b. If you are married filing separately and did not live with your spouse at any time during the tax year, write "D" to the right of the word "benefits" on line 20a.

Filing Form 1040A - If your benefits are taxable and you file a 1040A, report the amount in box 5 of your SSA-1099 on line 14a of the 1040A and the taxable amount on line 14b. If you are married filing separately and did not live with your spouse at any time during the tax year, write "D" to the right of the word "benefits" on line 14a.

Not Taxable - If your benefits are not taxable you do not have to report them on your tax return.

Are Your Benefits Taxable?

In order to determine if any of your benefits are taxable you should perform the following calculation:

Add one-half of your benefits to all your other income, including tax exempt interest. Do not reduce your other income by exclusions for interest from qualified savings bonds, employer-provided adoption benefits, foreign earned income, or income earned as a bona fide resident of American Samoa or Puerto Rico.

If this total is less than the appropriate base amount, your benefits are not taxable. The following are the base amounts to compare to your income:

• $25,000 if single, head of household, or qualifying widow.
• $32,000 if married filing jointly.
• $0 if married filing separately and you lived with your spouse at any time during the year.

If you exceed this base amount, 50% or 85% of your benefits will be taxed.

How Much of Your Benefits are Taxable?

If you have determined that your benefits are taxable, one-half (50%) of your benefits will be taxed unless one of the following applies to you:

• The total of one-half of your benefits and all your other income is more than $34,000 or $44,000 if you file a joint return.
• You are married filing separately and lived with your spouse at any time during the year.

If at least one of the following applies to you, 85% of your benefits are taxable.

Deductions Related to Your Social Security Benefits

Disability Benefits Repaid - Sometimes you may receive disability benefits from your employer or insurance company. If this occurs and you later receive a lump-sum payment from the SSA or RRB you may have been required to repay the disability payments. If you included the disability benefits in your income, you may take a miscellaneous itemized deduction for the amount repaid. (subject to the 2% limitation). If the amount repaid is more than $3,000 special rules apply.

Legal Expenses - If you pay legal expenses in order to collect your benefits, those expenses can be deducted as a miscellaneous itemized deduction (subject to the 2% limitation).

Repayments of Social Security Benefits - If you are required to repay to the SSA benefits that you have received, the amount of repayment will be deducted from your benefits shown on the SSA-1099. If your repayments exceeded benefits received, this can result in a negative amount in box 5. If you and your spouse both receive benefits or you receive more than one form, the negative amount can be used to offset the positive figure in box 5.

If you have a net negative number on all your SSA-1099 forms, you can take the negative amount as a miscellaneous itemized deduction (subject to the 2% limitation). If the deduction exceeds $3,000 special rules apply.

Deductions of More than $3,000 - If your deduction for repayment of benefits is more than $3,000 you need to figure your taxes two ways.

• Figure your taxes including the repayment as an itemized deduction.
• Figure your taxes as follows:
  1. Figure the tax without the itemized deduction for repayment
  2. For any year after 1983 for which benefits were repaid, refigure your taxable benefits by reducing your benefits for that year by the amount repaid for that year.
  3. Subtract the total of the refigured taxes in (2) from the total of taxes paid in those years.
  4. Subtract the result in (3) from the result in (1).

Compare the tax figured under each approach. Your tax for the current year is the lesser of the two. If the first method results in less tax, take the repayment as an itemized deduction.

If the second method results in less tax, you may take a credit on Form 1040, line 70 for the amount from (3) above. In the left margin on line 70, write "IRC 1341."

________________________________________
Dr. John L. Stancil, a tax analyst for WebTaxCenter.com, has been a member of the Florida Southern College faculty since 1998. He received his bachelors degree from Mars Hill College and holds a M.B.A. from the University of Georgia. He later earned his doctorate in accounting from the University of Memphis. He holds four professional certifications, including CPA, CMA, CFM and CIA. Stancil has received the Florida Institute of CPAs 2005 Outstanding CPA in Public Service Award. (This award is given annually to a Florida CPA who has demonstrated significant contributions through community and civic activities.) He has also been recognized as the Expert of the Month on several occasions by allexperts.com.

• File Your Return Online! Free Online Tax Preparation! FreeTaxUSA.com 100% Accuracy Guarantee Safe & Secure Free Federal, State Only $9.95 learn more...