To figure the total of one-half of your benefits plus your other income, use the worksheet later in this discussion. If the total is more than your base amount, part of your benefits may be taxable.

If you are married and file a joint return for 2003, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable.

If the only income you received during 2003 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable.

Your base amount is:

The person who has the legal right to receive the benefits must determine whether the benefits are taxable. For example, if you and your child receive benefits, but the check for your child is made out in your name, you must use only your part of the benefits to see whether any benefits are taxable to you. One-half of the part that belongs to your child must be added to your child's other income to see whether any of those benefits are taxable to your child.

Any repayment of benefits you made during 2003 must be subtracted from the gross benefits you received in 2003. It does not matter whether the repayment was for a benefit you received in 2003 or in an earlier year. If you repaid more than the gross benefits you received in 2003, see Repayments More Than Gross Benefits, later.

Your gross benefits are shown in box 3 of Form SSA–1099 or RRB–1099. Your repayments are shown in box 4. The amount in box 5 shows your net benefits for 2003 (box 3 minus box 4). Use the amount in box 5 to figure whether any of your benefits are taxable.

You can choose to have federal income tax withheld from your social security benefits and/or the SSEB portion of your tier 1 railroad retirement benefits. If you choose to do this, you must complete a Form W–4V. For 2004, you can choose withholding at 7%, 10%, 15%, or 25% of your total benefit payment.

If you do not choose to have income tax withheld, you may have to request additional withholding from other income or pay estimated tax during the year. For details, get Publication 505, Tax Withholding and Estimated Tax, or the instructions for Form 1040–ES.

Report your net benefits (the amount in box 5 of your Form SSA–1099 or Form RRB–1099) on line 20a and the taxable part on line 20b. If you are married filing separately and you lived apart from your spouse for all of 2003, also enter “D” to the right of the word “benefits” on line 20a.

Report your net benefits (the amount in box 5 of your Form SSA–1099 or Form RRB–1099) on line 14a and the taxable part on line 14b. If you are married filing separately and you lived apart from your spouse for all of 2003, also enter “D” to the right of the word “benefits” on line 14a.

If none of your benefits are taxable, do not report any of them on your tax return. But if you are married filing separately and you lived apart from your spouse for all of 2003, make the following entries. On Form 1040, enter “D” to the right of the word “benefits” on line 20a and “–0–” on line 20b. On Form 1040A, enter “D” to the right of the word “benefits” on line 14a and “–0–” on line 14b.

Generally, up to 50% of your benefits will be taxable. However, up to 85% of your benefits can be taxable if either of the following situations applies to you.

A worksheet to figure your taxable benefits is in the instructions for your Form 1040 or Form 1040A. You can use either that worksheet or Worksheet 1 in Publication 915, unless any of the following situations applies to you.

You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2003 in your 2003 income, even if the payment includes benefits for an earlier year.

This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. No part of the lump-sum death benefit is subject to tax.

Generally, you use your 2003 income to figure the taxable part of the total benefits received in 2003. However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. You can elect this method if it lowers your taxable benefits.

If you received a lump-sum benefit payment in 2003 that includes benefits for one or more earlier years, follow the instructions in Publication 915 under Lump-Sum Election to see whether making the election will lower your taxable benefits. That discussion also explains how to make the election.

Since the earlier year's taxable benefits are included in your 2003 income, no adjustment is made to the earlier year's return. Do not file an amended return for the earlier year.

You may have received disability payments from your employer or an insurance company that you included as income on your tax return in an earlier year. If you received a lump-sum payment from SSA or RRB, and you had to repay the employer or insurance company for the disability payments, you can take an itemized deduction for the part of the payments you included in gross income in the earlier year. If the amount you repay is more than $3,000, you may be able to claim a tax credit instead. Claim the deduction or credit in the same way explained under Repayments More Than Gross Benefits, later.

You can usually deduct legal expenses that you pay or incur to produce or collect taxable income or in connection with the determination, collection, or refund of any tax.

Legal expenses for collecting the taxable part of your benefits are deductible as a miscellaneous itemized deduction on line 22, Schedule A (Form 1040).

If you and your spouse file a joint return, and your Form SSA–1099 or RRB–1099 has a negative figure in box 5, but your spouse's does not, subtract the amount in box 5 of your form from the amount in box 5 of your spouse's form. You do this to get your net benefits when figuring if your combined benefits are taxable.

If the total amount shown in box 5 of all of your Forms SSA–1099 and RRB–1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year.

If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. Claim it on line 22, Schedule A (Form 1040).

If this deduction is more than $3,000, you should figure your tax two ways:

Compare the tax figured in methods (1) and (2). Your tax for 2003 is the smaller of the two amounts. If method (1) results in less tax, take the itemized deduction on line 27, Schedule A (Form 1040). If method (2) results in less tax, claim a credit for the amount from step 2(c) above on line 67 of Form 1040 and write “I.R.C. 1341” in the margin to the left of line 67. If both methods produce the same tax, deduct the repayment on line 27, Schedule A (Form 1040).