J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

34.6 How Tax on Social Security Reduces Your Earnings

There is an added tax cost of earning income if the earnings will subject your Social Security benefits to tax. Therefore, if your benefits are not currently exposed to tax, you have to figure not only the tax on the extra income but also the amount of Social Security benefits subjected to tax by those earnings. If the additional earnings will put you over the base amount (34.3), then you will not only have to pay tax on the additional earnings but also on the Social Security benefits that will be subject to tax.

EXAMPLES

1. You are over full Social Security retirement age (34.5) and you and your spouse receive net Social Security benefits of $8,000. You file jointly. You have pension income of $27,000 and $800 in tax-exempt interest. Your provisional income (34.3) is $31,800. No part of your Social Security benefits is taxable because your provisional income of $31,800 does not exceed the $32,000 base amount for married persons filing jointly.

2. Same facts as in Example 1, except that you take a part-time job paying $7,000. This increases your provisional income to $38,800 and subjects $3,400 of Social Security benefits to tax.

Provisional income	$38,800
Less: Base amount	32,000
Excess	$6,800
50% of excess taxable (34.3)	$3,400

The $7,000 of additional earnings increases your taxable income by $10,400, which is the $7,000 of earnings plus the $3,400 of Social Security benefits made taxable because of the ...