If you're living off of Social Security, every penny counts: minimizing your tax burden can help make sure you have enough money to keep the lights and heat on all year. Like many other states, Maine doesn't tax Social Security benefits, so you don't have to worry about paying state taxes on your benefits.
Maine Taxable Income
When figuring your Maine taxable income, you must start with your federal adjusted gross income and then make several additions and subtractions. One of the subtractions is for any of your Social Security benefits included in your federal adjusted gross income. For example, if your federal adjusted gross income is $35,000 but includes $5,000 of Social Security benefits, you get to subtract that $5,000 so your Maine taxable income would only be $30,000.
Maine Tax Reporting
When you file your Maine state income taxes, you must start with Schedule 1 to figure your Maine taxable income. On line 2c, under the "Subtractions" section, enter the amount of your taxable Social Security benefits from your federal tax return. If you used Form 1040A, your taxable benefits are found on line 14b. If you used Form 1040, your taxable benefits appear on line 20b. These amounts reduce your Maine taxable income.
IRS Social Security Tax Rules
Not all of your Social Security benefits are subject to federal income taxes, however, so the amount of your Maine subtraction won't equal your total Social Security benefits. According to the Social Security Administration, as of the 2012 tax year, you won't pay taxes on any of your Social Security benefits if your combined income falls below $25,000 and you're single, or $32,000 if you're married filing jointly. If you're single and it falls between $25,000 and $34,000, or you're a joint filer and it falls between $32,000 and $44,000, up to half your benefits are taxable. If you're over those limits, up to 85 percent of your benefits could be taxable.
Figuring the part of your Social Security benefits that is subject to federal income taxes requires a few extra calculations. To figure it, you have to add your adjusted gross income before your Social Security benefits, any nontaxable interest and half your total Social Security benefits. For example, if you have $10,000 in other taxable income, $2,000 in nontaxable interest and $20,000 of Social Security benefits, your combined income for purposes of this calculation is $22,000.
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