California has its own income tax laws that differ from federal tax laws. One of these differences is how Social Security benefits are taxed. On the federal income tax return, up to 85% of Social Security benefits may be subject to income tax. However, California has a more generous exclusion for Social Security benefits. In California, only up to 25% of Social Security benefits are subject to income tax. This means that most California taxpayers will pay less income tax on their Social Security benefits than they would if they lived in another state.
California Source Income
California source income is any income that is earned in the state of California. This includes wages, salaries, tips, bonuses, commissions, and self-employment income. Income from investments, such as dividends and interest, is also considered California source income if the investments are located in California.
Social Security Taxability
Social Security benefits are taxable on the California return to the extent that your combined income exceeds certain thresholds.
- For single filers, the threshold is $25,000.
- For married couples filing jointly, the threshold is $32,000.
If your combined income exceeds the threshold, then up to 85% of your Social Security benefits may be taxable on the California return.
| Filing Status | Threshold |
|---|---|
| Single | $25,000 |
| Married filing jointly | $32,000 |
Federal Base Amount and Taxable Portion
The federal government sets a base amount of Social Security income that is subject to taxation. This base amount is the same for all taxpayers, regardless of their state of residence. For 2023, the federal base amount is $25,000 for single filers and $32,000 for married couples filing jointly.
The taxable portion of Social Security income is the amount of Social Security benefits that exceeds the federal base amount. The taxable portion is then subject to federal income tax at the taxpayer’s ordinary income tax rate.
| Filing Status | Base Amount | Taxable Portion |
|---|---|---|
| Single | $25,000 | Up to 50% |
| Married filing jointly | $32,000 | Up to 85% |
For example, if a single taxpayer receives $30,000 in Social Security benefits, the taxable portion of their benefits would be $5,000 ($30,000 – $25,000). This $5,000 would then be subject to federal income tax at the taxpayer’s ordinary income tax rate.
Exclusions and Deductions for Social Security Income
In California, a portion of Social Security benefits may be subject to state income tax. The taxable percentage varies depending on the taxpayer’s income and filing status.
Exclusions:
- Up to $7,500 of Social Security benefits are non-taxable for single filers and married couples filing separately.
- Up to $15,000 of benefits are excluded for married couples filing jointly.
Deductions:
- Taxpayers may deduct 50% of their remaining Social Security income from their state taxable income.
- This deduction is phased out for taxpayers with higher incomes.
| Filing Status | Taxable Percentage of Social Security Benefits | Income Threshold for Deduction Phase-Out |
|---|---|---|
| Single | 85% | $34,000 |
| Married Filing Jointly | 50% | $44,000 |
| Married Filing Separately | 85% | $22,000 |
Reporting Social Security Income on CA Form 540
When it comes to income taxes, Social Security benefits may be subject to state and federal taxation. In California, the amount of Social Security income that can be taxed is based on the taxpayer’s federal modified adjusted gross income (MAGI).
MAGI is calculated by taking the taxpayer’s federal adjusted gross income (AGI) and adding certain deductions and exclusions. The resulting MAGI amount is then used to determine what percentage of Social Security benefits may be taxed on the California return.
The following table shows the percentage of Social Security benefits that may be taxed on the California return, based on the taxpayer’s MAGI:
| MAGI | Percentage of Social Security Benefits Taxed |
|---|---|
| Up to $32,000 (single) / $64,000 (married) | 0% |
| $32,001 – $44,000 (single) / $64,001 – $88,000 (married) | 50% |
| Over $44,000 (single) / $88,000 (married) | 85% |
For example, if a single taxpayer has a MAGI of $35,000, they would be subject to taxation on 50% of their Social Security benefits. This means that if they received $10,000 in Social Security benefits during the year, they would have to report $5,000 of that income on their California return.
It’s important to note that this is just a general overview of how Social Security income is taxed in California. There may be other factors that can affect the amount of benefits that are taxable, such as the taxpayer’s filing status, deductions, and credits.
Hey there! Thanks for sticking with me to the end of this article. I know, taxes can be a real snoozefest, but I hope I was able to shed some light on how Social Security benefits get taxed in California. If you have any more questions, feel free to hit me up. And don’t forget to drop by again soon for more tax-related chit-chat!