Helping with my Dad

[ClaytonD32988]

My hero of a dad has, unfortunately, never been a financial hero. In fact, at the tender age of 69, he may medically be forced in to retirement - no savings and about $600k in assets. Without the sob story of how he resisted aggressive financial advice from his kids, his "live for today" mentality has not been a financially thought out approach. Yada Yada 

I can't seem to find a specific answer to the following, what is the tax rate on $33k/ annum social security benefits in the state of Maryland with no additional income?

Please help! I'm relying on you!

[fffred]

@ClaytonD32988 

Sorry about your dad (replying as another 69 YO). Maybe he didn't expect to live this long. Or something. Some people just live for the moment, without regard for the future. I probably tend the other way, towards planning for the future. I guess this all goes back to Aesop and his fable about "the grasshopper and the ant". Unfortunately, dad might have to finance another 20 years. But with SS and $600K in assets he's surely in a better situation than many others are.

I'm not familiar with Maryland income tax rules. But some judicious Google searches help. So, there seems to be a personal exemption of $3,200 for a single person (I assumed he's single), that would reduce his actual income by that amount. It seems that there are local tax authorities as well and the tax rate varies. I found a number of Maryland state gov't sites but I found this site most useful (hopefully it's up to date):  https://taxfoundation.org/state-income-tax-rates-2021/

It seems there is also a "standard deduction" just as for the federal, this seems to be (per that site) "(bb) The standard deduction is 15 percent of income with a minimum of $1,550 and a cap of $2,300 for single filers and married filing separately filers."

The income tax rates are progressive, like the US federal, meaning that as the income increases the tax rate also increases. And they have tiny steps of $1,000 brackets through $3,000 taxable income (why bother?).

With that $600K in assets I assume that dad makes some interest and/or dividends on that. So I assumed $5,000. So total income is $31K + $5K = $36K. Minus the personal exemption of $3200 and the max standard deduction of $2300, that gives taxable income of $30,500. I calculated the tax to be $1,396.25   (found with the tax brackets as $20 + $30 + $40 + $1,306.25)

I am just guessing here but based on my assumptions there wouldn't be any federal tax due on the Social Security. I didn't see any remarks that Maryland does not tax Social Security benefits...which would have been nice for your dad, I know there are some such states.

Perhaps the $660K assets include his residence? In that case my assumed $5,000 extra for interest/dividends would probably be reduced. Maybe in the end dad will pay around $100 a month in state income tax, maybe a little bit more. Plus those local income taxes.

Another site you might find helpful with more traffic is the www.bogleheads.com finance forum. And there are good related forums on Reddit. And other personal finance forums on the web.

I hope this helps some. Just remember that I am not a professional and this is only my brief investigation and calculation. You might do better by creating a draft 2020 tax return using TurboTax for the Web (it would be free to use up to the point at which you actually "submit"...which you wouldn't be doing anyway).

Good luck!

Edit:  Oh, I see that the SS income is $33K, not the $31K that I'd used in my calculations. That brings taxes up to $1,443.75 ... I also reduced the "extra" income for investments to only $4,000.