State Level (in California)?

Q: I'm trying to do some retirement planning, and I have two questions: Suppose someone has about $3,000 in pension income and $2,000 in social security income. 1. Are social security benefits and pension payments taxed at the same rates as ordinary income at both federal and state level (in California)? 2. Do the taxes owed under question #1 represent the full tax obligation, or are there any other obligations owed by the taxpayer - that is, do they also have to pay SSI, medicare, or any other taxes on social security or pension benefits?

A: -Federal: Social security benefits are taxed ONLY if regular income plus 50% of SS benefits exceed $25,000 (single - $32,000 married filing joint - $0 married filing separate), and then included only at at most 85%.California: Social Security benefits are not taxed.Earned income may affect social security benefits, but I don't think there are other tax consequences. Benefits MAY be included for determination of some California tax credits, but I haven't checked. -I can't speak as to California rules, but if the $5,000 is someone's sole income, they won't owe any federal income tax because the income is less than the standard deduction plus personal exemption the person is entitled to. To answer your question directly, not all SS and pension benefits are taxable, but those that are are taxed at ordinary income rates. A portion of Social Security benefits is federally taxable if the total of -- 50 percent of your benefits plus -- all your taxable income plus -- any tax-exempt interest (such as municipal bond interest) exceeds the following amounts: -- $25,000 for taxpayers filing single, head of household or qualifying widow(er); -- $32,000 for married taxpayers filing jointly; -- $25,000 for a married taxpayer filing separately who lived apart from his/her spouse for the entire year; or -- zero for a married taxpayer filing separately if he/she lived with his/her spouse at any time during the tax year. What part of pension benefits is taxable depends on several factors, including whether the recipient contributed to the pension plan while working. Social Security/Medicare taxes are only levied on employment income. I know of no other federal taxes due on the income set

out in your example. There may be state or local taxes. I don't know. -Are these MONTHLY or ANNUAL amounts? If ANNUAL, you have no tax return or tax to worry about, you fall below the minimum limits. If MONTHLY income amounts (and you are single), you will owe ordinary income tax on the pension income and 85% of the social security benefit. See the worksheet in your 1040 instruction book for determining how much of your social security benefit is taxable. Neither pension nor social security are subject to payroll taxes (SS and Medicare). If you are over 65, a portion of your SS benefit ($66.60 in 2004) will be withheld for Medicare B insurance.