As 2024 tax returns are being processed, we've noticed an unusual trend in those filed through TurboTax. A significant number of returns with Social Security benefits are incorrectly reporting those benefits as tax-free. Based on our calculations, these benefits should be reported as taxable. This suggests that some TurboTax users who filed early may have an error on their returns, causing the potential to under-report taxable income for 2024.
What You Can Do
It's likely that only clients who filed their returns early this year through TurboTax have been affected. Before finalizing your tax return, check the taxable Social Security field in TurboTax and ensure that the information is correct. If you're unsure when filing, consider waiting a little longer to file while TurboTax updates its system, or consult with your advisor to ensure the accuracy of your return.
How Social Security is Taxed
Social Security benefits can be tax-free, but only if your total income is below certain limits: $25,000 for single filers and $32,000 for married couples filing jointly. For tax purposes, "income" is calculated as Modified Adjusted Gross Income (MAGI), which includes total income, tax-free bonds, and half of your Social Security benefits. If your income exceeds the threshold above, a larger portion of your Social Security benefits will become taxable. At most, up to 85% of your Social Security benefits can be taxed as part of your income.
Understanding how Social Security benefits are taxed and ensuring your return accurately reflects your current income position can help avoid potential issues down the road. It’s important to stay vigilant when filing your taxes! While the issue with 2024 Social Security benefits being incorrectly marked appears to be limited to those who filed early, we recommend double-checking the taxable Social Security field on your return. If you’re unsure, it may be wise to wait for updates from TurboTax or consult with an advisor to ensure your return is accurate. Tax season can be a stressful time for many but being proactive and attentive as you file your return will prevent unforeseen surprises later in the year.
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Source: Holistiplan
Disclosures:
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Harvest Point® Wealth Management and LPL Financial do not provide specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.