Social Security benefits include monthly retirement, survivor, and disability benefits. They don’t include supplemental security income (SSI) payments, which aren’t taxable.
Equivalent tier 1 railroad retirement benefits are the part of tier 1 benefits that a railroad employee or beneficiary would have been entitled to receive under the Social Security system. They are commonly called the Social Security equivalent benefit (SSEB) portion of tier 1 benefits. Tier 1 railroad retirement benefits are the equivalent of Social Security benefits and are treated the same way for income tax purposes.
If you receive benefits during the year, you will receive a Form SSA-1099 or Form RRB-1099 that shows the total payments that you received. Box 5 of each form includes the net benefit amount that you’ll need to allow you to compute the taxable portion.
If the only income that you received during 2010 was your Social Security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally aren’t taxable and you probably don’t have to file a return.
If you have income in addition to your benefits, up to 85% of your Social Security or SSEB payments can be taxed. You may have to file a return even if none of your benefits are taxable.
To determine if any of your benefits may be taxable, compare the base amount for your filing status with the total of:
One-half of your benefits, plus
All your other income, including tax exempt interest.
When making the above comparison, do not reduce your other income by any exclusions for:
Interest from qualified U.S. savings bonds,
Employer provided adoption assistance,
Foreign earned income or foreign housing, or
Income earned by a bona fide resident of American Samoa or Puerto Rico.
The base amounts for each filing status are:
$25,000 if you are single, head of household, or qualifying widow(er)
$25,000 if you are married filing separately and lived apart from your spouse for all of the current tax year (2010)
$32,000 if you are married filing jointly, or
$0 if you are married filing separately and lived with your spouse at any time during the current tax year (2010).
Generally up to 50% of your benefits will be taxable. However, up to 85% of your benefits can be taxable if either of the following situations applies to you.
The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if married filing jointly).
You are married filing separately and lived with your spouse at any time during 2010.
To find out whether any of your benefits are taxable, compare the base amount for your filing status with the total of:
One-half of your benefits, plus
All your other income, including tax-exempt interest and other exclusions from income, such as foreign earned income and some adjustments.
If your modified adjusted gross income (MAGI) is less than $34,000 for single filers or $44,000 for those who file joint returns, up to 50% of the benefits that you receive are taxable. If your MAGI exceeds $34,000 (single filers) or $44,000 (joint filers), then up to 85% of the amount that you receive is taxable. The H&R Block software will figure the taxable amount for you.
See the worksheet in either IRS Publication 915 or the instructions for Form 1040 in order to determine the taxable amount of your benefits. Also, for more information, see these resources:
IRS Publication 554: Tax Guide for Seniors
IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits
Form 1040A instructions
Form 1040 instructions