Members of the Maryland Association of Certified Public...

Tax questions

March 27, 1997

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.

Q: I had earnings in the first four months of 1996 before retiring May 1. Also, I received a pension in the form of a lump sum that was taxable at 20 percent that was supposed to hold me over until August, when I could get a regular pension check. Also, I received Social Security benefits beginning June 1. Should I lump all these earnings together or can I keep them as separate categories and pay taxes only on the lump-sum pension and the earnings for the first four months of the year?

A: You will receive different tax forms for the income you received. For example, you will receive a Form W-2 for your earnings, Form 1099-R for pension distributions and a Form SSA-1099 for your Social Security benefits. The pension earnings and Social Security are different items reportable on separate lines of the Form 1040. A portion of your Social Security may be taxable depending on the total of certain taxable income and tax-exempt income. You will pay tax on your earnings, lump-sum pension and your regular monthly pension. If you receive 100 percent of your pension account from your employer in the current tax year, you might qualify for special tax treatment on your federal return. You must meet certain criteria for this treatment. If you made contributions to your pension plan, then you should calculate what portion of your pension is tax free. The state of Maryland does not tax Social Security, and, depending on your age and the amount of Social Security received, you may be eligible for a pension exclusion on qualified pension income. These are considered subtractions on your Maryland Form 502.

The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.

To ask a tax question, call Sundial at 410-783-1800. Call 268-7736 in Anne Arundel County, 836-5028 in Harford County and 848-0338 in Carroll County. Using a Touch-Tone phone, punch in the four-digit code 6225 after you hear the greeting.

Readers also can e-mail questions through The Sun's Web site -- www.sunspot.net.

Selected questions will be answered in the Business section. No questions will be answered by phone.

Pub Date: 3/27/97

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