A: Social Security benefits are not subject to federal personal income tax if the taxpayer's "provisional income" is below the "base amounts" of $32,000 for Married Filing Joint filers and $25,000 for all others. Provisional income is calculated by taking Adjusted Gross Income (without Social Security benefits) plus tax-exempt interest plus half of Social Security benefits. The effect of the 1993 reforms was to change the treatment of income above this "base amount."

Pre-1993: For those with incomes exceeding the base amount thresholds, the basic rule prior to 1993 was that 50% of the Social Security benefit contributing to income above the base amount was subject to tax. The amount of Social Security benefit subject to tax was calculated by taking the lesser of 50% of Social Security benefits or 50% of the result of provisional income minus the base amount.

An example: A married couple has AGI without Social Security benefits of $30,000, and Social Security benefits of $8,000. Provisional income is $34,000 (AGI without Social Security benefits + 50% of Social Security benefits). That's more than the base amount of $32,000, so some Social Security will be subject to tax. The taxpayer must include the lesser of: 50% of the amount by which provisional income exceeds the base amount (in this example, 50% of ($34,000 minus $32,000), or $1,000) or 50% of Social Security Benefits (in this example, 50% of $8,000, or $4,000). Since $1,000 is less than $4,000, $1,000 of the benefits are subject to tax.

As income exceeds the base amount by a greater margin, more and more of Social Security is subject to tax--to a maximum of 50% of Social Security benefits. This is how the rules applied to most taxpayers before the 1993 reforms.

Post-1993: For many taxpayers, the current rules are similar. Taxpayers with provisional income below the base amounts of $25,000 and $32,000 are not subject to federal personal income tax on their Social Security benefits, while taxpayers with income above these thresholds will find that the tax applies to some percentage of their benefits. For joint filers with incomes under an "adjusted base amount" of $44,000 and other filers with incomes under $34,000, the rules are essentially the same as before 1993: up to 50% of Social Security benefits may be subject to tax. For taxpayers with provisional income above this "adjusted base amount," on the other hand, up to 85% of benefits can be taxed. The general rule is that benefits contributing to income between the old "base amounts" and the new "adjusted base amounts" are subject to the 50% rule, while benefits contributing to income above the new "adjusted base amounts" are 85% subject to tax.

This means that if your income is over the "adjusted base amount" ($34,000 or $44,000), you first calculate taxable social security exactly as you would under the old rules-- but only up to the "adjusted base amount." Provisional income above the "adjusted base amount" is now taxed at a higher rate: 85%. So people will provisional income above the adjusted base amount now have to calculate two tax amounts-- one for income up to the adjusted base amount and one for income above it, and then add the two tax amounts together. The total amount of Social Security benefits subject to tax is the lesser of this sum and 85% of Social Security benefits.

An example: A Married Filing Jointly couple has AGI without Social Security benefits of $43,000 and Social Security benefits of $18,000. Provisional income is $43,000 plus 50% of $18,000 = $52,000. The first $44,000 of provisional income will be taxed according to the old rules, and the final $8,000 of provisional income will be taxed under the new rules. Taxable Social Security on the first $44,000 of provisional income equals $6,000 (50% of ($44,000-$32,000)). Taxable Social Security on the final $8,000 of provisional income equals 85% of ($52,000 - $44,000), or $6,800. Finally, we add together the two components of tax ($6,000 and $6,800). The amount of Social Security benefits taxable is the lesser of this sum ($12,800) and 85% of net Social Security benefits ($15,300). Since $12,800 is less than $15,300, the sum of taxable Social Security benefits is $12,800.

How would this couple have fared under pre-1993 law? The amount of taxable Social Security benefits under the pre-1993 law is the lesser of: 50% of the amount by which provisional income exceeds the base amount (in this case, 50% of ($52,000 minus $32,000), or $10,000) or 50% of Social Security benefits (in this case, 50% of $18,000, or $9,000). Therefore, $9,000 of the Social Security benefits would have been subject to tax under pre-1993 law. This particular taxpayer would have reported ($12,800 minus $9,000), or $3,800, less taxable income under the old law. So the 1993 reform represents a tax hike for this particular couple.

Last Updated 1/2/2006

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