Are Any of Your Benefits Taxable?

To find out whether any of your benefits are taxable, compare the base amount (explained later) for your filing status with the total of:

1. One-half of your benefits, plus
2. All your other income, including tax-exempt interest.

When making this comparison, do not reduce your other income by any exclusions for:

• Interest from qualified U.S. savings bonds,
• Employer-provided adoption benefits,
• Foreign earned income or foreign housing, or
• Income earned in American Samoa or Puerto Rico by bona fide residents.

The RRB issues Form RRB-1099 and Form RRB-1042S. The SSA issues Form SSA-1099 and Form SSA-1042S. These forms (tax statements) report the amounts paid and repaid, and taxes withheld for a tax year. You may receive more than one of these forms for the same tax year. You should add the amounts shown on all forms you receive from the SSA and/or RRB for the same tax year to determine the "total" amounts paid and repaid, and taxes withheld for that tax year. See Appendix, at the end of this publication for more information.

Figuring total income. To figure the total of one-half of your benefits plus your other income, use the worksheet later in this discussion. If the total is more than your base amount, part of your benefits may be taxable.

If you are married and file a joint return for 2001, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable.

If the only income you received during 2001 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable.

Base amount. Your base amount is:

• $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 2001,
• $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 2001.

Worksheet. You can use the following worksheet to figure the amount of income to compare with your base amount. This is a quick way to check whether some of your benefits may be taxable.

Example. You and your spouse (both over 65) are filing a joint return for 2001 and you both received social security benefits during the year. In January 2002, you received a Form SSA-1099 showing net benefits of $6,600 in box 5. Your spouse received a Form SSA-1099 showing net benefits of $2,400 in box 5. You also received a taxable pension of $17,000 and interest income of $500. You did not have any tax-exempt interest income. Your benefits are not taxable for 2001 because your income, as figured in the following worksheet, is not more than your base amount ($32,000) for married filing jointly.

Even though none of your benefits are taxable, you must file a return for 2001 because your taxable gross income ($17,500) exceeds the minimum filing requirement amount for your filing status.

Who is taxed. The person who has the legal right to receive the benefits must determine whether the benefits are taxable. For example, if you and your child receive benefits, but the check for your child is made out in your name, you must use only your part of the benefits to see whether any benefits are taxable to you. One-half of the part that belongs to your child must be added to your child's other income to see whether any of those benefits are taxable to your child.

Repayment of benefits. Any repayment of benefits you made during 2001 must be subtracted from the gross benefits you received in 2001. It does not matter whether the repayment was for a benefit you received in 2001 or in an earlier year. If you repaid more than the gross benefits you received in 2001, see Repayments More Than Gross Benefits, later.

Your gross benefits are shown in box 3 of Form SSA-1099 or Form RRB-1099. Your repayments are shown in box 4. The amount in box 5 shows your net benefits for 2001 (box 3 minus box 4). Use the amount in box 5 to figure whether any of your benefits are taxable.

Example. In 2000, you received $3,000 in social security benefits, and in 2001 you received $2,700. In March 2001, SSA notified you that you should have received only $2,500 in benefits in 2000. During 2001, you repaid $500 to SSA. The Form SSA-1099 you received for 2001 shows $2,700 in box 3 (gross amount) and $500 in box 4 (repayment). The amount in box 5 shows your net benefits of $2,200 ($2,700 minus $500).

Tax withholding and estimated tax. You can choose to have federal income tax withheld from your social security benefits and/or the SSEB portion of your tier 1 railroad retirement benefits. If you choose to do this, you must complete a Form W-4V. You can choose withholding at 7%, 10%, 15%, or 27% of your total benefit payment.

If you do not choose to have income tax withheld, you may have to request additional withholding from other income or pay estimated tax during the year. For details, get Publication 505 or the instructions for Form 1040-ES.

U.S. citizens residing abroad. U.S. citizens who reside in the following countries are exempt from U.S. tax on their benefits.

• Canada.
• Egypt.
• Germany.
• Ireland.
• Israel.
• Italy. (You must also be a citizen of Italy for the exemption to apply.)
• Romania.

The SSA will not withhold U.S. tax from your benefits if you are a U.S. citizen.

The RRB will withhold U.S. tax from your benefits unless you claim an exemption from withholding. For information on how to claim an exemption from withholding, see Exemption from withholding under Nonresident aliens, next.

Nonresident aliens. A nonresident alien is an individual who is not a citizen or resident of the United States. If you are a nonresident alien, the rules discussed in this publication do not apply to you. Instead, 85% of your benefits are taxed at a 30% rate, unless exempt (or subject to a lower rate) by treaty. You will receive a Form SSA-1042S or Form RRB-1042S showing the amount of your benefits. These forms will also show the tax rate and the amount of tax withheld from your benefits.

Under tax treaties with the following countries, residents of these countries are exempt from U.S. tax on their benefits.

• Canada.
• Egypt.
• Germany.
• Ireland.
• Israel.
• Italy.
• Japan.
• Romania.
• The United Kingdom.

Under a treaty with India, benefits paid to individuals who are both residents and nationals of India are exempt from U.S. tax if the benefits are for services performed for the United States, its subdivisions, or local government authorities.

If you are a resident of Switzerland, 85% of your benefits are taxed at a 15% rate.

For more information, get Publication 519, U.S. Tax Guide for Aliens.

Exemption from withholding. If your social security benefits are exempt from tax because you are a resident of one of the treaty countries listed, the SSA will not withhold U.S. tax from your benefits.

If your railroad retirement benefits are exempt from tax because you are a resident of one of the treaty countries listed, you can claim an exemption from withholding by filing Form RRB-1001, Nonresident Questionnaire, with the RRB. Contact the RRB to get this form.