well welcome back everybody to Social Security taxation part two! in this video
we're gonna cover how to calculate the tax on your Social Security and
determine how much of your Social Security income may or may not be
subject to tax if you missed part one make sure to go back and check it out in
part one we covered a lot of the basic rules that are really important to
understand in this part part 2 we're gonna be applying those rules and show
you step by step how this stuff is calculated everything you're seeing on
screen here today is free to download it's in the Excel document I'll leave a
Dropbox link in the description section of the video and in the comment section
of the video with that being said let's go ahead and dive into this guys but
like I said make sure I want you really to understand the rules before you can
understand this so make sure to go back and watch part 1 if you have not already
seen that just look in the description section of this video for the link
alright guys to help you wrap your head around this we're going to take it piece
by piece the first thing you need to know about when it comes to your social
security income the main thing that's gonna determine whether or not you have
to pay any tax on it at all is what other forms of income you have it's it's
based on your combined total income so all of your Social Security income plus
all of your other combined income it's very important to know the distinction
there so other four forms of income you guys already know about these wages
taxable interest even taxes imp interest counts dividends alimony business income
taxable IRA distributions count taxable pensions and so on and so forth so I've
put together two examples for you guys and we're just gonna cover I probably
tend to cover one full example for a sake of time cuz I don't this stuff is
really technical and I don't want you guys falling asleep on the other side of
your phone or computer there I don't want that to happen
no injuries here we're gonna avoid you falling asleep and hurting yourself so
I'm just gonna kind of cover one example but you're gonna be able to download
this and look at this stuff in detail I'm gonna try to make it crystal clear
for you guys but remember my advice to you
if you really want to learn this stuff if you really want to really wrap your
head around it then definitely take some time to pause the video as we go along
to read everything you're seeing on screen and down this download the
spreadsheet I think listening to this video is gonna help help you better
understand it but I think even more so after you've listened to the video doing
some self-study re watching this video is gonna help you make more and more
sense of it so that's what I recommend alright let's dive right into it by
looking at example number one and let's say that you're a person let's say you
have twenty seven thousand dollars in wages and 1990 dollars in interest okay
and then you have no other forms of income that's it so even even though
you're beyond sixty six this person's still working you're still you're still
going at it making some extra money and so your total combined income in this
example is twenty eight thousand nine hundred ninety nine your total combined
income before Social Security extremely important for the calculation extremely
important now your total Social Security income because maybe you just started
taking Social Security this year in this example is five thousand nine hundred
and eighty dollars can we tell right away if if you're gonna have to pay any
tax on your on your Social Security income if this is you we can so the
first thing we would look at let me poke the word document but in part one we
talked about this this these different charts of whether or not the income is
going to be taxable and if you remember now in example one I should say that
this is for a single filer so this is for a person who's not married so an
example one if if they're combined if a person's total combined income is
greater than $25,000 then up to 50% of their Social Security benefits may be
subject to tax depending upon how much over they are right away we already know
that in this example we already know that your total combined income is over
$25,000 so you can already determine right away that at least some portion of
your social security income is gonna be subject to taxation in this example the
very first step in this calculation is really taking 50 percent of your Social
Security benefits right at the top that's the first part
of this calculation so we take 50% of this okay guys and that gets you two
thousand nine hundred ninety dollars now the next thing that looks at is our
total combined income well we know on the last page
our total combined income was twenty eight thousand nine hundred ninety
dollars because we had some wages and we had some interest right we're gonna add
back any taxes interest if we had any we don't so we don't need to so if there's
any adjustments or exclusions you would enter them here if you had like certain
types of tax credits or things like that you would drop them here in this example
we don't the next part of our calculation is we now need to combine
lines two three four and five well these numbers right here guys on the side
these represent what line we're on okay so this is line two so we're gonna add
this and we have something on at line three so we're gonna add this so those
two numbers combined that gets us our thirty one thousand nine hundred eighty
dollars now line seven it says inner adjusted gross income adjustments if any
so if you do have adjustments to your income it's gonna be found right here
anything that would refer the reduce your taxable income is gonna be right
here on Schedule one and that's where you're gonna find that and that's what
this line seven that's what it's really talking about but in this example we
don't have any adjustments so we're just going to move forward now it says line
eight is it it says is the amount on line seven less than the amount on line
six it is so we can just move forward if if it wasn't then we would have to look
at this a little bit more closely and and do a different kind of calculation
so I should mention that right now is what you'll find as you're going through
the Social Security calc to determine how much of your Social Security is
subject to tax is based on those facts and circumstances of your situation the
calculation might be slightly different okay so that's something you have to
look for but I hope with a spreadsheet it's gonna be easier to see and visually
go line by line by line which is why I've set this up for you guys
and clearly like for me laying it out like this on an Excel document really
helps me understand it more myself so since line seven with zero which means
it's less than line six now we can go ahead and go on and move down to the
line number nine now it says if you're married filing joint in route thirty two
thousand here if you're any other filing status including head of household or
single or married filing separate you would enter 25,000 this is an example
for a single person so we're gonna plug the twenty five thousand dollar number
there because it's given to us okay that's number is given to you and that's
what you have to put here it's either gonna be twenty five thousand or you're
gonna put thirty two thousand dollars if you're married now we're on line ten it
says is the amount on line nine less than line eight it says if the amount on
line eight is smaller than the amount on line nine none of your Social Security
benefits are taxable so right away if you're doing this calculation as soon as
you got to this step if this amount on line eight was less than this you would
right away he would know nothing is subject to tax but in this example since
we're saying that our total combined income is is more and with that you know
be it being 31,000 we know that part of it it's gonna be subject to tax so six
thousand nine hundred eighty so basically we took this minus this that
gets us to six thousand nine hundred and eighty now we're looking at line eleven
it says enter twelve thousand if married flying joints he says if any other
status enter nine thousand so we entered nine thousand here and it says subtract
on line 12 it says subtract line eleven from line ten if zero or less in or zero
so in if we were to subtract line eleven from line ten we would get a negative
number so which is why this is a zero here so let's just move on and carry
forward and I have a little explanation you guys can read off to the side here
of how that would calculate out so if we took this minus this it would give us
some - 2020 which is why we're still gonna that's gonna call it zero all
right guys I know this is a lot to take in but we're just about done and then
we're gonna wrap this up now we're on line thirteen it says enter the smaller
of line ten or line eleven well line eleven is 9,000 line ten is 6,000 nine
eighty which one's smaller well you guys know that one it's six thousand nine
eighty is the smaller of the two so that's why we're gonna put six thousand
980 on line 13 right here now line 14 it says enter one half of line 13 so one
half of line 13 is three thousand four hundred ninety dollars which is
basically this times fifty percent are this number divided by two gets you
three thousand four hundred nine dollars all right line fifteen now it says enter
the smaller of line two or line fourteen so now we're gonna go all the way back
up to the top what was line two well line two was this number right here
is when we first started out we took 50% of our total social security income
that 50% of this so that gives us the 2009 90 so let's go back down here let's
go back down and it says enter the online 15 it says enter the smaller of
line 2 or line 14 well line 14 is 3490 we know that line 2
up above was smaller so we're gonna enter two thousand nine hundred and
ninety dollars here okay guys we're finally getting to the end of this it
says on line 16 it says multiplied line twelve by 85% if line 12 is zero inner 0
so if we look back up a line 12 it was zero so we don't have anything to worry
about there so basically in this example we can totally skip doing anything with
line 16 and we can move straight to line 17 line 17 says add lines 15 and 16
fifth line 15 was 2990 and line 16 was zero so right away that's our number
right there it's just we carried this on down and then on line 18 it says
multiply line one by 85% so now we got to go back up to the top of the document
line one line one was 5980 okay so line one was our total social
security benefits of 5980 moving back down now to line 18 so if if our income
was really high if it was super high then that's we would be then this is the
maximum amount of your Social Security that would be subject to tax would be 85
percent remember like the maximum amount no matter how much money you make even
if you make millions and receive Social Security the maximum amount of your
Social Security that can be subject to tax is only 85 percent so 15 percent of
it regardless of your income is always going to be exempt from tax I'm very
important to remember that so 85 percent of line one is five thousand eighty
three dollars and last but not least guys here we go
it says line 19 the taxol portion of benefits
says enter the smaller of line 17 or line 18 well we know line 18 is greater
than line 17 so this 2000 $990 this is the amount of
this person's Social Security that is subject to tax is two thousand nine
hundred and ninety dollars so let's say so let's say you got almost six thousand
and benefits well even though you've got six thousand and benefits roughly from
Social Security only this amount gets added to your total taxable income for
the year okay guys on screen now what you're seeing is the tax form itself of
where you would report these income numbers this is where you would report
the wages this is where you would report your interest in your Social Security
income and then obviously how much of it is actually subject to taxation that is
how it would be reported on your 1040 if this was you if this was exactly your
situation all right guys well I know this stuff is really technical I hope I
didn't give you a headache going through this line by line but that's how this
calculation plays out I'm not gonna for sake of time I don't think I'm gonna
cover example number two but if you it's because it's very similar to example
number one except I've included an example number two this is a person who
is married they're not they're not a single filer and they have a couple
other kind of forms of income to report but other than that other than the fact
that they're filing status is married and their incomes slightly different the
calculation is pretty much the same so you're just you would just walk through
it line by line by line before I wrap this video up guys I do want to mention
that I included a blank workbook in the spreadsheet when you download it so you
can just walk through this for yourself by yourself you know let's go through it
line by line look at your total wages your total
interest dividends capital gains you gotta take all that stuff into account
when you're trying to figure out how much of your Social Security income is
subject to tax and I've included examples from the publication and I
forgot to show you that guys over here guys but on this example this is coming
directly from the publication itself and so that's where I've pulled this
information and that's how I you that's how I built the spreadsheet is I pulled
it directly from the IRS pub locations and I broke it out I think in
the simpler fashion than this is I think it's easier to calculate it here rather
than on this especially since Excel adds things up for you to subtract things so
I think you guys will find out a little easier now I do want to mention the
reason this stuff is so important to know really at the end of the day I know
this stuff is like super technical you guys I probably gave you all a headache
and I apologize if I did but the reason that this is really important is because
when you're about to retire or when you are retired
if budgeting is really important and part of budgeting is knowing whether or
not you're gonna have to pay taxes and knowing how much of your Social Security
benefits is subject to tax is really important because if you have to pay tax
on that you have to budget then set money aside more money for taxes and
that's gonna totally impact your retirement okay so that's just things to
keep in mind now remember if your total combined if you're single and let's say
you only get like a fifteen thousand dollar pension okay which would mean
your total combined income would be less than the twenty five thousand that we
were looking at on this worksheet then zero percent of your social security
benefits are taxable zero so these numbers right here these annual income
numbers really it's really pointing at what other forms of income you have
outside of Social Security and that's where people get confused this is not
based on how much Social Security income you received this is based on how much
other income you have you know if you if you exclude your benefits so those were
that's what those numbers are for and I hope you guys found this video helpful
we went through this pretty fast go back re-watch the video download the
spreadsheet work through it line by line by line and I think you'll have it guys
so if you have it comments questions leave them down below I look forward to
reading what you guys have to say happy to answer any questions you have and if
you want to see more videos like this just let me know and definitely we're
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gonna be retiring soon how most people aren't thinking about taxes when they're
retired they're not even aware of it very few people do think about that and
this might give them a heads up that oh hey grandma grandpa or whoever maybe you
might owe some tax on your Social Security because it's gonna increase
your taxable income so giving them this information will really give them a
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