Some of the Social Security Retirement Benefits (SSRB) that you may collect may be taxable depending on the amount of SSRB received, in addition to other taxable and non-taxable income. If your income is over a certain amount (called the “base amount”), some of your benefits may be taxable. Base amounts are $25,000 for single taxpayers and $32,000 for married taxpayers filing jointly. Here’s an example of the single person calculation to determine if income is over the base amount:
SSRB Received $23,000
½ of SSRB Received $11,500
+ Taxable Income $30,000
+ Tax-Exempt Interest $10,000
Total Income $51,500
Base Amount – Single $25,000
The above calculation only determines if some of your SSRB are taxable. In the above example, some of this individual’s SSRB would be subject to tax because his or her total income of $51,500 is above the base amount of $25,000. Another calculation must be done to determine exactly how much of your SSRB are taxable and that calculation can be complex. But, as a general rule, up to 50% of your SSRB may be taxable if your total income is above the base amount.
Further, up to 85% of your SSRB may be taxable if your total income exceeds $34,000 for single taxpayers and $44,000 for married taxpayers filing jointly. You should discuss the taxation of benefits with your accountant or tax advisor. The Internal Revenue Service also provides an online tool to assist in determining what portion, if any, of your Social Security benefits are taxable. Here is the link to this information:
With the lingering issue of Social Security’s long-term sustainability and insufficient retirement savings, finding an alternative and supplemental retirement source is crucial. The lifetime benefits of tax-free withdrawals and loans from a whole life insurance policy’s cash value may be that alternative.1 Note that there are many different types of Social Security benefits, such as retirement, disability, survivors, and supplemental security income. This article only discusses Social Security Retirement Benefits. Consult with a qualified financial professional to learn more.
Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses or is surrendered, any loans considered to be gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, and are subject to ordinary income taxes to the extent there is gain in the policy. If the policy owner is under 59½, any taxable withdrawal from a MEC may also be subject to a 10% penalty tax. The maximum amount of wages subject to Social Security taxes is $118,500 for 2015. Wages above the maximum amount are not subject to Social Security taxes. The wage limit does not apply to Medicare’s Hospital Insurance tax