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Case Study 3 - Taxation of Social Security for Married Couples

$40,000 in Social Security

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This case study shows a couple with $40,000 in combined Social Security income. The standard rule of thumb is your Social Security will be taxed at either 50% or 85%, but it's actually not so simple. (You can find additional details in Taxes on Social Security Benefits.)

When you work your way through the formulas, you can pay tax on anywhere from 0 - 85% of your Social Security benefits. The numbers in the table below were generated by professional tax preparation software. It shows results for a married couple with $40,000 of Social Security. As their "other income" such as IRA distributions, Pensions, or dividend and interest income go up, it makes more of their Social Security taxable. The table shows how much Social Security becomes taxable for every $1,000 of other income. It also shows how much tax would be owed.

You can see that although your average tax rate may stay low, the incremental rate on the next $1,000 of income you have jumps to 46.3% when you reach $56,000 of income in addition to your Social Security income. This band where every extra $1 of other income causes a lot more of your Social Security income to be taxable and thus you pay a very high marginal rate is sometimes referred to as the tax torpedo.

Compare the table below to Social Security Taxation Case Study 1, which shows a couple with $28,000 of Social Security, or Social Security Taxation Case Study 2 which shows a couple with $12,000 of Social Security.

The table below uses the following assumptions:

  • Married filer
  • $40,000 in joint Social Security benefits
  • Source of data in table: Rhonda Keene's calculations, done with Lacerte 2010

Case Study 3 - Social Security Taxation for Marrieds

Other Income Federal Income Tax Taxable Soc. Security Tax Increase Rate on $1,000 Increase Avg. Tax Rate Gross Income
18,000 231 3,000 - - - 58,000
19,000 383 3,500 152 15.2% 0.6% 59,000
20,000 533 4,000 150 15.0% 0.9% 60,000
21,000 683 4,500 150 15.0% 1.1% 61,000
22,000 833 5,000 150 15.0% 1.3% 62,000
23,000 983 5,500 150 15.0% 1.6% 63,000
24,000 1,133 6,000 150 15.0% 1.8% 64,000
25,000 1,318 6,850 185 18.5% 2.0% 65,000
26,000 1,503 7,700 185 18.5% 2.3% 66,000
27,000 1,694 8,550 191 19.1% 2.5% 67,000
28,000 1,971 9,400 277 27.7% 2.9% 68,000
29,000 2,249 10,250 278 27.8% 3.3% 69,000
30,000 2,526 11,100 277 27.7% 3.6% 70,000
31,000 2,804 11,950 278 27.8% 3.9% 71,000
32,000 3,081 12,800 277 27.7% 4.3% 72,000
33,000 3,359 13,650 278 27.8% 4.6% 73,000
34,000 3,636 14,500 277 27.7% 4.9% 74,000
35,000 3,914 15,350 278 27.8% 5.2% 75,000
36,000 4,191 16,200 277 27.7% 5.5% 76,000
37,000 4,469 17,050 278 27.8% 5.8% 77,000
38,000 4,746 17,900 277 27.7% 6.1% 78,000
39,000 5,024 18,750 278 27.8% 6.4% 79,000
40,000 5,301 19,600 277 27.7% 6.6% 80,000
41,000 5,579 20,450 278 27.8% 6.9% 81,000
42,000 5,856 21,300 277 27.7% 7.1% 82,000
43,000 6,134 22,150 278 27.8% 7.4% 83,000
44,000 6,411 23,000 277 27.7% 7.6% 84,000
45,000 6,689 23,850 278 27.8% 7.9% 85,000
46,000 6,966 24,700 277 27.7% 8.1% 86,000
47,000 7,244 25,550 278 27.8% 8.3% 87,000
48,000 7,521 26,400 277 27.7% 8.5% 88,000
49,000 7,799 27,250 278 27.8% 8.8% 89,000
50,000 8,076 28,100 277 27.7% 9.0% 90,000
51,000 8,354 28,950 278 27.8% 9.2% 91,000
52,000 8,631 29,800 277 27.7% 9.4% 92,000
53,000 8,909 30,650 278 27.8% 9.6% 93,000
54,000 9,186 31,500 277 27.7% 9.8% 94,000
55,000 9,531 32,350 345 34.5% 10% 95,000
56,000 9,994 33,200 463 46.3% 10.4% 96,000
57,000 10,444 34,000 450 45% 10.8% 97,000
58,000 10,694 34,000 250 25% 10.9% 98,000
59,000 10,944 34,000 250 25% 11.1% 99,000
60,000 11,194 34,000 250 25% 11.2% 100,000
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