Overview

Main Menu Name: Social Sec.

Calculates the taxable social security benefits under OBRA '93 (effective for tax years beginning after 1993).

In this article:

• Background
• Why should I use this calculator?
• Getting Started
• Entering Data
• Results

Background

The Omnibus Budget Reconciliation Act of 1993 (OBRA '93) greatly affected the rules regarding social security benefits. Starting in 1994, taxpayers may be taxed on up to 85% of their social security benefits. Under the prior law, social security recipients were taxed on up to 50% of their benefits.

The law applies to taxpayers whose Provisional Income (Adjusted Gross Income, or AGI, excluding social security benefits, plus tax-exempt interest income and 50% of social security benefits) is greater than $44,000 (married filing jointly) or $34,000 (single). For those falling into this income bracket, the amount subject to taxation is the lesser of 85% of social security benefits or 85% of the amount of the taxpayer's provisional income over the OBRA '93 amounts ($44,000/$34,000), plus the lesser of $6,000 (married filing jointly) or $4,500 (single), or the amount subject to taxation under the prior law 50% inclusion rules.

Why should I use this calculator?

• To show the impact of OBRA '93 on taxable social security benefits.
• To indicate whether any benefits are taxable and whether a higher percentage of benefits are subject to tax under the new law.

Getting Started

The Omnibus Budget Reconciliation Act of 1993 (OBRA '93) greatly affected the rules regarding social security benefits. Starting in 1994, taxpayers may be taxed on up to 85% of their social security benefits. Under the prior law, social security recipients were taxed on up to 50% of their benefits.

The new law applies to taxpayers whose Provisional Income (Adjusted Gross Income, or AGI, excluding social security benefits, plus tax-exempt interest income and 50% of social security benefits) is greater than $44,000 (married filing jointly) or $34,000 (single). For those falling into this income bracket, the amount subject to taxation is the lesser of 85% of social security benefits or 85% of the amount of the taxpayer's provisional income over the new OBRA '93 amounts ($44,000/$34,000), plus the lesser of $6,000 (married filing jointly) or $4,500 (single), or the amount subject to taxation under the prior law 50% inclusion rules.

Entering Data

1. Social Security Benefits:  Enter the dollar amount of social security benefits received.
2. AGI (Excluding Social Security Benefits):  Enter the Adjusted Gross Income.
3. Tax Exempt Interest Income:  Enter the amount of tax exempt interest.
4. Filing Status (Single or Joint):  Select the client's filing status.

Results

The program shows step-by-step how the taxable benefit amount is determined. The calculator does not calculate the amount of tax paid on social security, but this could be done with the additional input of the client's marginal federal tax bracket.