Do taxes on winnings hurt social security bettors more?

[LemonSoupKid]

I was talking to some older gentlemen about the math of this, and it seems that once you've passed the top thresholds and are at 85% for social security, the additional amount you are reporting gets crushed ...

This sounded like it might hit someone with much lower income just as hard as a guy who could have written the bet off, but is at a much higher overall (fed) tax rate. Am I correct in concluding this?

[therussmeister]

I am not quite sure what he is claiming, but it sounds wrong to me.

Except that your SS income puts you in a higher tax bracket, you are taxed at the same rate as everyone else in that bracket. If that's what he means by 'getting crushed' then so be it.

That is to say if you collect $25000 in social security and make $25000 gambling you have the same liability as someone who makes $21250 working (85% of $25000) and makes $25000 gambling.

[therussmeister]

I think I know what he means.

If social security and other income is between 25k and 34k 50% of SSI is taxable, above 34k 85% is taxable.

If near the end of the year you are near either of these thresholds, you might want to consider whether you want to cross the threshold and subject more of your SSI to income tax.

[LemonSoupKid]

Originally Posted by therussmeister

I think I know what he means.

If social security and other income is between 25k and 34k 50% of SSI is taxable, above 34k 85% is taxable.

If near the end of the year you are near either of these thresholds, you might want to consider whether you want to cross the threshold and subject more of your SSI to income tax.

When I looked this up I was very surprised, as the example on the internet of course was an IRA distribution (withdrawal) that indicated that a 3k addition to your income (or any more now that you're above the 42k married "combined income" threshold) via that method would be taxed at 85%.

I'm not sure I totally understand it, but maybe you do, russ, so I'll put a hypothetical out there.

A guy with 50k income and 30k SS benefits hits a super at the track and it happens to be so big that he can't skip even with the new withholding rules. Let's say it's an $11,000 score. Let's also say he tried 100 more supers that year that went busto, and he writes the $11k off on fed. He's effectively already around 15% bracket for the fed return.

I'm trying to figure out how that extra $11k impacted his SS taxation, and at what level it just doesn't matter anymore. As opposed to some guy who makes 85k and effectively gets taxed 17%, which would be (2018 tax rules) a little over 18% if he added 11k for total AGI of 96k.

Thanks for reading all that,

[therussmeister]

Originally Posted by LemonSoupKid

When I looked this up I was very surprised, as the example on the internet of course was an IRA distribution (withdrawal) that indicated that a 3k addition to your income (or any more now that you're above the 42k married "combined income" threshold) via that method would be taxed at 85%.

I'm not sure I totally understand it, but maybe you do, russ, so I'll put a hypothetical out there.

A guy with 50k income and 30k SS benefits hits a super at the track and it happens to be so big that he can't skip even with the new withholding rules. Let's say it's an $11,000 score. Let's also say he tried 100 more supers that year that went busto, and he writes the $11k off on fed. He's effectively already around 15% bracket for the fed return.

I'm trying to figure out how that extra $11k impacted his SS taxation, and at what level it just doesn't matter anymore. As opposed to some guy who makes 85k and effectively gets taxed 17%, which would be (2018 tax rules) a little over 18% if he added 11k for total AGI of 96k.

Thanks for reading all that,

In this case the extra 11k does not affect his SS taxation. That's why I don't know what that guy was talking about. Only when a winner pushes total income above 25k or 34k does it impact SS taxation.

In the IRA example you stated, I don't think it is taxed at 85% but rather 85% is taxed and 15% is tax free.

To summarize, if total income is below 25k social security is not taxed. 25k to 34k 50% of SSI is taxed, and above 34k. 85% of SSI is taxed.

[Afleet]

nothing like paying tax on a tax

[AltonKelsey]

Originally Posted by Afleet

nothing like paying tax on a tax

Figure out how much of the original betting dollar is confiscated after takeout, and tax on a big win.


Makes the lottery look like a good deal.

[LemonSoupKid]

Originally Posted by therussmeister

In this case the extra 11k does not affect his SS taxation. That's why I don't know what that guy was talking about. Only when a winner pushes total income above 25k or 34k does it impact SS taxation.

In the IRA example you stated, I don't think it is taxed at 85% but rather 85% is taxed and 15% is tax free.

To summarize, if total income is below 25k social security is not taxed. 25k to 34k 50% of SSI is taxed, and above 34k. 85% of SSI is taxed.

Thanks for the summary, but the terms get crazy because income or "combined income" when talking in a SS scenario actually includes SS benefits as part of the number (1/2).

If the guy is married and has income of 50k (more than 44k for joint filers) what you're saying is that 85% of his SS benefit gets taxed at what, his highest bracket? Then the best is just taxed theoretically at the highest bracket, right? Even if you write off the bet with other losses? That's what I'm trying to figure.

[AskinHaskin]

Originally Posted by LemonSoupKid

Do taxes on winnings hurt social security bettors more?

INdirectly it can be said that taxes on winnings are LIKELY to “hurt SS bettors more”, but most prominent in that is the fact that they are most likely ‘ineligible’ to deduct losses from winnings because that isn’t cost effective until your ‘winnings’ tally more than $8000/9000 for many/most on SS.

Even AT $8000/9000 (of IRS signers) it is rather pointless to itemize ones taxes to facilitate the deduction of losses from reported ‘winnings’, and THAT is what sucks most, for more limited-income players who (had?) for years been subjected to liberal IRS signing levels.

Many others have businesses and home loans which already find them itemizing taxes to where they just add-in their losses against their reported ‘race track winnings’ of, say, $1224 here, $3275 there, and $2800 here again. (totaling just $7299 for the year).

The limited-income SS guy ‘can’t’ deduct ANY losses, in most cases... cuz it would be a money-loser for him to itemize in order to do so.