Avoid the social security tax trap

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Tax savvy

A tax deferred annuity may be an option worth considering for your clients who are looking for the potential of long-term growth and the ability to reduce their taxable
income.

Potential taxes on social security benefits

As much as 85% of Social Security benefit could be subject to federal income tax.¹ What’s more, the formula to determine taxable Social Security income includes tax exempt income, such as that from municipal bonds and qualified U.S. Savings Bonds. Here’s how it works:

Adjusted gross
income

(pensions, wages,
dividends, savings
interest)

Tax-exempt
income

50% of annual
social security
benefits

Provisional income used to determine taxable amount
If provisional income is between:

$25,000-$34,000

for single persons or

$32,000-$44,000

for married
couples filing jointly,
then...

Up to 50%
of social
security benefit
is subject to tax¹

If provisional income is greater than:

$34,000

for single persons or

$44,000

for married
couples filing jointly,
then...

Up to 50%
of social
security benefit
is subject to tax¹

From taxable income to
tax-deferred income

Because earnings in an annuity are generally tax-deferred, your earnings (until withdrawn) are not included in the formula used to determine the amount of Social Security income that is subject to federal income tax. If you have non-qualified assets that are generating taxable or tax-exempt income that is not needed to meet your current financial needs, you may want to consider moving assets to a deferred annuity in order to help reduce the extent to which your Social Security benefits are taxed.

A taxing situation

To determine if any of your Social Security benefits may be taxable, use the worksheet. You can follow the example included as a guide.

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¹Based on Internal Revenue Service Publication 915, 2021.
Information in this report should not be used in any actual transaction without the advice and guidance of a professional Financial Advisor. In some instances a Tax Advisor and/or Attorney should also be contacted for counsel. Although the information contained here is presented in good faith, it is General in nature may require additional consideration of other matters. This report is for informational purposes only.