Ken and Klee offer last-minute federal tax filing tips regarding Social Security benefits

Any last second tips before filing? Anything that may be a surprise as I finish up my tax return?

— Ad Hoc

There are a few items that may not be as straightforward as you think as you run your final calculations and double check what you are and are not reporting. Here is one source of income that has some hurdles in computing the taxable portion (if any), at several levels: SOCIAL SECURITY.

Social Security benefits (SSB) and their impact on taxable income.

Every taxpayer must report his/her Social Security benefits on Form 1040 or 1040-SR. However, it's very likely that all or a significant part of the benefits will not be taxable due to the "Base Amount" — Modified Adjusted Gross Income (MAGI) plus half of SSB which is the floor for SSB reporting, and the "Adjusted Base Amount" which provides a ceiling on the “Base Amount” calculation.

Tax Talk: Benefits and burdens of requesting an automatic 6-month extension to file taxes

For single, head of household and qualifying widows/widowers, the key numbers are $25,000 (Base Amount) and $34,000 (Adjusted Base Amount). The figures for a married filing jointly couple are $32,000 and $44,000. The IRS instructions for Form 1040 provide a helpful worksheet computation. In a situation where a portion of the Social Security benefits are included as income, the maximum taxable amount will be 85% … that's somewhat good news.

The much-better news — any Social Security benefits that are taxable by Uncle Sam are allowed as a deduction on the Indiana income tax form (as well being excluded in 37 other states and the District of Columbia).

Collecting Social Security and continuing to work before you reach your "full retirement age."

“Full Retirement Age” is typically between 66 and 67, depending on your year of birth, and taking your SSB may cause a taxpayer to have their Social Security benefits reduced during the period while they are still working and below “full retirement age.” A basic "rule of thumb" is your benefits will be reduced by $1 for each $2 earned above the annual limit which is $22,320 for 2024. For example, if a 64-year-old taxpayer generates $28,320 from his/her employment during 2024, the reduction in the total 2024 Social Security benefits would amount to $3,000 (i.e., 50% of the $6,000 over the annual limit).

Special rule that applies to a taxpayer who works for a portion of the year before he/she retires.

This calculation can become somewhat convoluted. We recommend contacting the Social Security Administration. Have them “do the math" before asking for a detailed explanation of what most "tax types" regard as a favorable first-year rule.

Ken & Klee's Tax Notebook

With the April 15 filing deadline here Monday, this will be our final column for the 2023-24 filing season. We are very grateful to our readers who provided input, ideas, questions and other interesting feedback. Thank You.

USAFacts.org provided some interesting tax facts this week:

• The average American family — based on income — paid $17,900 in total taxes in 2021, with $10,400 (58%) of this going to federal income tax.

• Forty-three states and Washington, D.C., collect income taxes annually.

• New York had 2020’s highest state income tax burden. The state collected income taxes of 4.7% of per capita personal income or nearly $3,500 per person. Indiana’s per capita income tax percentage ranked 13th nationally.

• Alaska, Florida, Nevada, South Dakota, Texas and Wyoming have no income tax. Tennessee and New Hampshire have modest income taxes on certain types of income, such as interest and dividends, while the state of Washington taxes capital gains for high-income individuals.

While not writing in the months ahead, here are three predictions we will be monitoring. Namely, a) our two favorite MLB teams, the Cubs and the Yankees, will meet in the 2024 World Series in October; b) the November presidential election will be a cliffhanger and; c) our Tax Talk column will return to the pages of the Sunday South Bend Tribune on Dec. 15, 2024. Of course, as the noted musical prognosticator Meat Loaf once said, “Two out of three ain't bad." See you in December! Until then, we'll close with a Claude Renshaw (one of the original Tax Talk writers) remark, "Here's wishing you many happy returns!"

Tax Talk is an outreach service of the Notre Dame-Saint Mary’s College Vivian Harrington Gray Tax Assistance Program (TAP).

Rick Klee served as the tax director at the University of Notre Dame from 1998 through August 2019. A retired CPA, Klee is a graduate of Notre Dame. You can contact Rick at rklee@nd.edu.

Ken Milani, a professor of accountancy at Notre Dame, co-founded the TAP and served as its faculty coordinator for 39 years. Contact Ken at milani.1@nd.edu.

This article originally appeared on South Bend Tribune: Last minute filing tips regarding Social Security