Are my Social Security benefits taxable?

If the only income you received during the tax year were Social Security or equivalent railroad retirement benefits, your benefits are probably not taxable and you probably will not have to file a tax return.

If you also received other income, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status (see "Quick Computation" below).

NOTE: There is no difference in the calculation for determining the taxation of Social Security benefits - whether the benefits are age-related or disability-related, except Social Security benefits do not include supplemental security income (SSI) payments, which are not taxable. Also, foreign Social Security benefits may or may not be taxable (discussed later).

Quick Computation - First, add one-half of your Social Security or equivalent railroad retirement benefits to all your other income, including any tax exempt interest and exclusions from income. Then, compare the total to your base amount. Your base amount is one of the following:

• $25,000 if you are single, head of household, or qualifying widow or widower with a dependent child;

• $25,000 if you are married filing separately and did NOT live with your spouse at any time during the year;

• $32,000 if you are married and file a joint return; or

• $0 if you are married filing separately AND you lived with your spouse at any time during the year.

If your income is less than your base amount, then none of your benefits are taxable.

If any benefits are taxable, they must be included in the gross income of the person who has the legal right to receive them. For example, if you and your child received benefits, but the check for your child was made out in your name, you must use only your own portion of the benefits in figuring if any part is taxable to you. Half of the portion that belongs to your child must be added to your child's other income to determine if any of those benefits are taxable to your child.

If you are married and file a joint return, you and your spouse must combine your incomes, social security benefits, and equivalent railroad retirement benefits when figuring the taxable portion of your benefits.

You should receive your 2007 Form SSA–1099 or Form RRB–1099 by January 31, 2008. The form will show benefits paid to the person who has the legal right to receive them, and the amount of any benefits you repaid in 2007. It will also show amounts by which the benefits were reduced because you received workers compensation benefits.

CANADA

Benefits paid under the Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS) program to a U.S. resident or resident alien are taxable, if at all, only in the United States. These Canadian benefits are treated as U.S. Social Security benefits for U.S. tax purposes. Thus, under Internal Revenue Code Section 86, the portion of the benefits that is taxable will depend on your total income. If your total income is above certain limits, a maximum of 85% of your benefits will be subject to U.S. tax. Any benefit under the Social Security legislation of Canada that would not be subject to Canadian tax if paid to a resident of Canada is not subject to U.S. tax.

Under the 1997 protocol the Canada - U.S. tax treaty, the Canadian and U.S. governments agreed to return to a residence-based system under which Social Security benefits are taxable exclusively in the country where the recipient resides.

UNITED KINGDOM

Under the U.S.-United Kingdom income tax treaty that entered into force in 1980, Social Security income is taxable only by the country of residence. If you are a resident of the U.S. for tax purposes, the income would be reported and taxed in the U.S. You would not treat the income as U.S. social security benefits. The entire amount would be taxable as pension income on your U.S. income tax return.

GERMANY

German Social Security benefits paid to a U.S. resident are taxable, if at all, only by the United States. These German benefits are treated like U.S. Social Security benefits. Thus, under Internal Revenue Code Section 86, the portion of the benefits that is taxable will depend on your income level. If your total income is above certain limits, a maximum of 85% of your benefits will be subject to U.S. tax.

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