ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Monday, February 17, 1997 TAG: 9702190001
SECTION: MONEY PAGE: 6 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: DAVE SKIDMORE Associated Press Writer
Better-off Social Security recipients - about one in four - must pay taxes on some portion of their benefits. How much depends on how much outside income they earn.
Up to 50 percent of their benefits will be subject to tax if their other income plus half their Social Security benefits totaled between $32,000 and $44,000 (for married taxpayers filing jointly) or between $25,000 and $34,000 (for single taxpayers).
Up to 85 percent of their benefits will be subject to tax if their income - including half their benefits - was more than $44,000 (married filing jointly) or more than $34,000 (single).
Although most recipients don't pay taxes on any part of their benefits, many are forced to do some complicated figuring just to make sure they don't.
If you received Social Security benefits you should have received Form SSA-1099 in the mail by Jan. 31. IRS Notice 703, included with the form, has a worksheet, as do the instruction booklets for Forms 1040 and 1040A. If any part of your Social Security is taxable, you may not use Form 1040EZ. Publication 915 has more information.
Figuring out how much of your yearly retirement pension or annuity distribution is taxable also can be pretty complicated. The easiest situation is if you contributed nothing to your pension or annuity. Then, it's all taxable.
But if you contributed some of it in after-tax dollars, then you don't have to pay tax on the part of your pension that represents a return of those contributions.
If your Form 1099-R on your pension or annuity shows a taxable amount, you can report that as taxable income. Or, try using the worksheet in the Form 1040 instruction booklet to see if you can report a lower amount. It's a simplified formula that divides the non-taxable part of your pension by the number of payments you're expected to receive, based on your age.
But, the formula only applies if your pension or annuity started after July 1, 1986, and before Nov. 19, 1996. If your pension started July 1, 1986, or before, see Publication 939. If it started Nov. 19, 1996, or later, see Publication 575, or Publication 721 for U.S. civil service retirees.
Congress last year made the formula a little less generous for those starting their pensions on or after Nov. 19, 1996, essentially by assuming they'd live longer and collect more payments.
It also took away the $5,000 exclusion for death benefits paid to beneficiaries of employees and former employees. It was repealed for individuals who died after Aug. 20, 1996.
Those who turned 65 by Jan. 1, 1997, get a higher standard deduction than younger taxpayers. It's $1,000 higher for single filers for a total of $5,000, compared with $4,000 for those younger than 65. It's $1,600 higher for couples where both spouses are 65 or older and $800 higher for couples where one spouse is 65 or older. That's $8,300 and $7,500, respectively, compared with $6,700 for couples where both are younger than 65.
The blind get the same increase in their standard deduction. Those who are both blind and elderly get their deduction increased twice for a total of $2,000 more for a single filer and $3,200 more for a couple where both spouses are blind and elderly.
If you're poor and were 65 or older or totally disabled at the end of 1996, you may qualify for a special tax credit of up to $1,125.
If both you and your spouse qualify, your combined adjusted gross income must be less than $25,000 and you must have less than $7,500 non-taxable Social Security and pension income. The limits are $20,000 and $5,000 if only one spouse qualifies; $17,500 and $5,000 for single people; and $12,500 and $3,750 if you're married, don't live together and file separate returns.
You'll need to fill out Schedule 3 if you use Form 1040A or Schedule R if you use Form 1040. See Publication 524 for more information.
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