Filing Income Tax Return Jointly to Minimize Taxation of Your Social Security Benefits

Capital Gain Income and Loss
April 7, 2017
Generating Tax-Free Income
April 7, 2017

Filing Income Tax Return Jointly to Minimize Taxation of Your Social Security Benefits

What is filing your income tax return jointly?

If you’re married, filing your income tax return jointly may save you a lot of money by minimizing the amount of income tax you pay on your Social Security retirement benefit. If you’re married and live with your spouse in the same household during the year but file your taxes separately, you must pay tax on most of your Social Security benefit even if you have no other income. However, if you’re married and live with your spouse in the same household during the year and file your taxes jointly, your benefits will be taxed only if your total income exceeds a certain base amount.

How does it work?

Your benefit will always be taxable if you live with your spouse but file married filing separately

If you live with your spouse but file married filing separately, your Social Security retirement benefit will always be taxable, even if you didn’t earn any extra income.

Your benefit will be taxable if you live with your spouse and file married filing jointly only if you have income over a certain limit

If you live with your spouse and file married filing jointly, your Social Security retirement benefit will be taxable only if you earned extra income and your total income (one-half of your Social Security benefits plus all your other income) exceeds $32,000.

The $32,000 base amount is determined by law and is not adjusted annually for inflation.

If your benefit is taxable, you probably will pay more tax if you file married filing separately than if you file married filing jointly

If you live with your spouse and file married filing separately, you will pay tax on up to 85 percent of your Social Security retirement benefit, no matter what your total income is. However, if you file married filing jointly, you will pay tax on up to 85 percent of your Social Security retirement benefit only if one-half of your benefit plus your modified adjusted gross income (MAGI) exceeds $44,000. If your total income is less than $44,000 but more than $32,000, you will only pay tax on up to 50 percent of your benefits.

Dick and Teri were married and lived in the same household during most of the tax year. When they filled out their tax return, they filed as married filing separately. Their Social Security retirement benefits for the year totaled $20,000. Neither one of them had any other earned or unearned income during the year. When they filed their income tax return, they ended up owing income tax on $17,000, 85 percent of their total retirement benefit. However, if they had chosen to file married filing jointly, they would not have paid any income tax on their Social Security benefits because they had no other income.

Tax considerations

When you choose to file your taxes jointly, you should consider other factors besides the impact the filing status will have on your Social Security retirement benefit. For example, you may want to file your taxes separately in order to keep your income separate. Ask your financial planner or tax advisor to consider your whole tax picture before using this strategy.

Questions & Answers

If your spouse is retired and receiving Social Security retirement benefits but you are still working, do you have to include your income when calculating whether your spouse’s Social Security benefit is taxable?

Yes. If you’re married and will file a joint return, you must add your income to your spouse’s benefit when you calculate whether your spouse’s benefit will be taxable.