If a US Citizen receives Social Security benefits but has augmented his sources of income, it is essential to note that the expanded or provisional income can affect his taxes. However, many options can keep this income tax-free, as reported by gobankingrates.com.
Provisional income comprises the sum of half your Social Security benefits, your tax-exempt interest and other non-Social Security items (such as jobs or investments) that make up your adjusted gross income.
US Citizens Can Get a 100% tax rebate on fulfilling certain conditions.
For US citizens who are single tax filers, Social Security benefits aren’t taxed if your provisional income is less than $25,000. This amount increases to $32,000 if you’re married and filing a joint return.50% of your Social Security benefits might be taxable if the provisional income is $25,000 to $34,000 for single filers or $32,000 to $44,000 for joint filers. Above this income limit, up to 85% of your benefits could be taxable.
The benchmarks are still in place for when you file your 2021 tax returns next year. Since the federal government first began taxing benefits, there has been no change in rules. However, there are ways to make your income tax-free when you receive Social Security benefits. Here are a few of them.
Tax-free Provisional Income
The best way to earn a tax-free income is to stay below the income thresholds. Single citizens must have income below $25,000, are married, and file taxes jointly; the limit is $32,000 tax-free.
Tax-free Roth IRA Withdrawals
Enables withdrawal of money free of federal taxes and usually state taxes. But there are specific riders that come attached with this method. The option is available after you have had at least one Roth IRA open for over five years, you’ve reached age 59½, you are disabled, or you are deceased (in which case heirs get the tax-free withdrawals).
Tax-free home sale gains
US citizens who are single taxpayers and sold their principal residence will be exempted from paying federal taxes on up to $250,000 of their gain from a home sale. In addition, married citizens filing jointly can avail a tax-free income of up to $500,000 from selling a principal home. However, some criteria must be fulfilled, for example, tests regarding homeownership, home use, filing status and previous sales to qualify for the tax-exempt status.