log in         get a username

From HPAlumnipedia

From the HPAlumnipedia – hpalumnipedia.com.  The HP Alumni Association is an independent volunteer organization. Not endorsed or supported by Hewlett-Packard. Content is the responsibility of the authors. HPAA may, but is not obligated to, monitor or review content. By using this site you accept the site terms. © 2010 HPAA.

Mabel Esteves, October 2007

When you exercise your stock options, you have incurred a taxable event.

However, a lot of things need to happen before your social security benefits are taxable. Let's go by steps: .

1. Limits:

• $25,000 if you are single, head of house or qualifying widow(er)
• $25,000 if you are married filing separately and lived apart from your spouse all year
• $32,000 if you are married filing jointly,
• $-0- if you are married filing separately and lived with your spouse at any time during the year

. 2. Let's say your status is married filing jointly for this exercise, you received 12K in SS, 500 in interest, 500 in dividends, 26K in stock options gain reported as wages.

How is it calculated?

• Calculate half of your Social Security benefits (box 5 of your SSA statement)
• Add all your taxable incomes such as wages, taxable pensions, dividends etc
• Add all tax exempt interest such as municipal bonds, etc

Does the sum of these exceed the limit for your filing status? 6000 + 26000+1000 = 33000, a portion of your benefits is taxable.

If you do not have interest or dividends, your sum would have been 32000, therefore the benefits would not be taxable. .

3. For more in-depth discussion, Go to Pub 17 of the IRS, it can be downloaded from the IRS website. Go to Chapter 11 pages 78-81, they include examples and a worksheet to help you figure the taxable portion.

Generally, up to 50% of the benefits can be taxable, although in certain circumstances it goes be up to 85%. That is also covered in the Pub 17 in the pages mentioned above.