Impact Of IRA Contributions On Social Security Taxabilty

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
Arby
Posts: 442
Joined: Fri Jun 19, 2009 2:17 am

Impact Of IRA Contributions On Social Security Taxabilty

Post by Arby »

Calculating Provisional Income
The first step in estimating any taxes you might
have to pay on your Social Security benefit is to
calculate your provisional income.
Provisional
income
is defined by the Internal Revenue
Service (IRS) as the sum of wages, taxable and
nontaxable interest, dividends, pensions, selfemployment and other taxable income plus
half (50 percent) of your annual Social Security benefits
A simple example......let's assume a single taxpayer has 14K of income and 22K of SS benefits.

Since 14+22/2=25K the Social Security income would not be taxed. Since 14K is less than the standard deduction for seniors there would be no tax due.

Let's say that instead of 14K in income, one had 21K in income but made a 7K contribution to an IRA for "net income" of 14K. Can one deduct IRA contributions from income when determining if Social Security benefits should be taxed?
Last edited by Arby on Sat Jun 19, 2021 11:03 am, edited 1 time in total.
livesoft
Posts: 86075
Joined: Thu Mar 01, 2007 7:00 pm

Re: Impact Of IRA Contributions On Social Security Taxabilty

Post by livesoft »

Note that earned income will reduce SS benefits, too. That is separate from the SS benefits getting taxed.

https://www.ssa.gov/pubs/EN-05-10069.pdf
Wiki This signature message sponsored by sscritic: Learn to fish.
Topic Author
Arby
Posts: 442
Joined: Fri Jun 19, 2009 2:17 am

Re: Impact Of IRA Contributions On Social Security Taxabilty

Post by Arby »

livesoft wrote: Sat Jun 19, 2021 10:17 am Note that earned income will reduce SS benefits, too. That is separate from the SS benefits getting taxed.

https://www.ssa.gov/pubs/EN-05-10069.pdf
Thanks Livesoft!

I don't think it affects me though since I'm past full retirement age.
User avatar
FiveK
Posts: 15742
Joined: Sun Mar 16, 2014 2:43 pm

Re: Impact Of IRA Contributions On Social Security Taxabilty

Post by FiveK »

Arby wrote: Sat Jun 19, 2021 10:11 am Let's say that instead of 14K in income, one had 21K in income but made a 7K contribution to an IRA for "net income" of 14K. Can one deduct IRA contributions from income when determining if Social Security benefits should be taxed?
Yes.

See p. 31 of https://www.irs.gov/pub/irs-pdf/i1040gi.pdf.

The IRA contribution will go to line 6 of that worksheet and be subtracted.
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: Impact Of IRA Contributions On Social Security Taxabilty

Post by grabiner »

FiveK wrote: Sat Jun 19, 2021 11:48 am
Arby wrote: Sat Jun 19, 2021 10:11 am Let's say that instead of 14K in income, one had 21K in income but made a 7K contribution to an IRA for "net income" of 14K. Can one deduct IRA contributions from income when determining if Social Security benefits should be taxed?
Yes.

See p. 31 of https://www.irs.gov/pub/irs-pdf/i1040gi.pdf.

The IRA contribution will go to line 6 of that worksheet and be subtracted.
The worksheet for Social Security taxation is on page 16 of Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Line 7 of the worksheet says to subtract adjustments to income. In fact, the example on page 8 shows a taxpayer subtracting a deductible IRA contribution when computing the provisional income.
Wiki David Grabiner
User avatar
FiveK
Posts: 15742
Joined: Sun Mar 16, 2014 2:43 pm

Re: Impact Of IRA Contributions On Social Security Taxabilty

Post by FiveK »

grabiner wrote: Sat Jun 19, 2021 9:06 pm
FiveK wrote: Sat Jun 19, 2021 11:48 am
Arby wrote: Sat Jun 19, 2021 10:11 am Let's say that instead of 14K in income, one had 21K in income but made a 7K contribution to an IRA for "net income" of 14K. Can one deduct IRA contributions from income when determining if Social Security benefits should be taxed?
Yes.

See p. 31 of https://www.irs.gov/pub/irs-pdf/i1040gi.pdf.

The IRA contribution will go to line 6 of that worksheet and be subtracted.
The worksheet for Social Security taxation is on page 16 of Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Line 7 of the worksheet says to subtract adjustments to income. In fact, the example on page 8 shows a taxpayer subtracting a deductible IRA contribution when computing the provisional income.
Slight differences in the worksheets due to the American Rescue Plan Act of 2021, but either way the IRA contribution does affect the calculations.
Post Reply