Social Security income tax advantages

Katie Godbout, Director of Sales & Marketing
March 5, 2015
    

SStaxadv.jpgBecause Social Security carries a substantial tax advantage over other forms of income, delaying benefits in order to build a larger Social Security benefit may have a greater positive tax impact than most people realize.

Through our training tab you can find a calculator built by us to help you illustrate just how much Social Security income would be taxable for a given client. While we do not calculate the income taxes, it can aid you in the conversation about retirement income planning and how income taxes play an important role in the design of a retirement income strategy. If you are not a subscriber, try out the calculator here.

For example, let’s say that a couple has annual income of $24,000 from Social Security and $24,000 from other includible sources. The calculator will easily show you that with this income combination, only $2,000 of the couple’s Social Security is subject to tax.

However, if they delay claiming for eight years, their approximate Social Security benefit would be $42,000, assuming there is no inflation and both recipients delay until age 70.

The delay enabled Social Security benefits to increase by $18,000. Now the calculator shows that $6,850 of the total $42,000 of Social Security benefits is subject to income taxation. This means that of the $18,000 increase, only $4,850 is taxable, and the balance is free from federal income taxes.

The moral of the story is higher Social Security benefits relative to other income can be extremely tax-efficient.        

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Posted by Katie Godbout, Director of Sales & Marketing
Katie thrives on making an impact and achieving big goals. She believes that communication strategy has a major impact on business success. As a strategic communicator with a diverse background in non-profit, B2B, healthcare, and SaaS, Katie combines her expertise in strategy development, marketing and sales to spread the word about how Covisum can help advisors and institutions inform their clients of the best financial decisions.