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Discussion:Taxable Soc Sec & MFS

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Discussion Forum Index --> Basic Tax Questions --> Taxable Soc Sec & MFS


Discussion Forum Index --> Tax Questions --> Taxable Soc Sec & MFS

Bertkdo (talk|edits) said:

18 March 2014
I am running into an issue that I have not seen before when splitting tax returns. My client is a married couple (lived together all year) with the wife still working and showing taxable wages of approx $65,000. Husband started receiving disability in 2013 and received a lump sum gross benefit of $64,000. Besides this income, their other income is less than $900.

If I file a joint return for the two of them, approximately 80% of the Soc Sec benefits are taxable after I do the Lump Sum calculations. However, if I split the returns, I am calculating that less than 50% of the benefit is taxable (it's actually 50% of the Soc Sec Benefit plus his other income, times 85%). At first I thought my software was not correct, however, when I manually calculate this using the worksheet provided by the IRS, I reach the same solution. Has anyone else run into a situation similar to this? I was always under the impression that if you go MFS, 85% of the benefits are taxable by default.

Any guidance would be appreciated.

Ckenefick (talk|edits) said:

18 March 2014
If you go MFS, and live together, your base amount is $0.

Doug M (talk|edits) said:

18 March 2014
Lump sum and SS benefits means some of this is taxable (possibly) in a prior year. (LSE)

EZTAX (talk|edits) said:

18 March 2014
Look for a place in your software to check that they lived together.

Ckenefick (talk|edits) said:

18 March 2014
Sounds like to me that Bertkdo did the calc on the LSE. That is, he figured out what the prior years' gross income increase would have been had the benefits been rec'd in the PY's. Then, with this computed sum he did two things (1) threw it on a mock current year joint return and also (2) threw it on a mock current year MFS return. When he does #1, 80% of the benefit is taxed on the mock joint return. When he does #2, 50% of the benefit is taxed on the mock MFS return.

To my knowledge, there is no rule that says your filing status has to be the same across the board, in the look-back years and in the current year. Moreover, I don't think there's a rule that says that if you file MFS, 85% is taxable automatically.

Bertkdo (talk|edits) said:

18 March 2014
Thanks for the responses. I don't think this is just an issue with my software, as when I tried to calculate it manually using the IRS worksheet, I reached the same conclusion.

It looks like I may have misinterpreted this rule in the past. The taxable portion of the social security is being taxed automatically on 85% of the "combined income." Combined income is defined as AGI (without any taxable Soc Sec) + 50% of Soc Sec Benefits, + tax exempt income & other misc adjustments. In my case, since the Husband's income is primarily derived from social security, the combined income is 50% of his gross social security benefits, and he is taxed on 85% of this. In my case, the husband's combined income is $32,000 (50% of husband's $64,000 in benefits), and the taxable portion of this would be $27,200 (85% of $32,000).

Thanks again for the responses.

Ckenefick (talk|edits) said:

18 March 2014
It looks like I may have misinterpreted this rule in the past.

If you're referring to this comment:

I was always under the impression that if you go MFS, 85% of the benefits are taxable by default.

...then I think you're right. The MFS rule, for spouses who live together, is this:

If you go MFS, and live together, your base amount is $0.

...try it in your software. Run an MFS return and click the box for "living together" as EZ suggests...you'll find that the benefits aren't 85% taxable in the various scenarios you input.

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