Will Your Social Security Benefits Be Taxed? Here’s What to Know
Many retirees don’t realize that a portion of their Social Security benefits may be taxable. Depending on your income, up to 85% of your benefits could be subject to federal taxes. The good news? With the right planning, you can manage or even reduce what you owe.
How Social Security Taxes Work
Whether your benefits are taxed depends on your combined income, which is calculated as:
Adjusted Gross Income (AGI) + Nontaxable Interest + 50% of Your Social Security Benefits
Once you know that number, here’s how it affects your taxes:
For Individuals
- $25,000 or less → No Social Security benefits are taxed.
- $25,001 - $34,000 → Up to 50% of benefits may be taxable.
- Over $34,000 → Up to 85% of benefits may be taxable.
For Married Couples (Filing Jointly)
- $32,000 or less → No Social Security benefits are taxed.
- $32,001 - $44,000 → Up to 50% may be taxable.
- Over $44,000 → Up to 85% may be taxable.
What Does This Actually Mean for Your Taxes?
The percentages above don’t mean you lose 50% or 85% of your benefits—it just means that portion is subject to your regular income tax rate.
For example:
If you’re in the 22% tax bracket and 50% of your Social Security is taxable, you’ll pay 22% tax on that portion—not on your full benefits.
How to Reduce Taxes on Your Benefits
A few smart strategies can help minimize Social Security taxes:
- Tax Efficient Distributions
- Tax Efficient Investments and Asset Location
- Proactive Planning vs. Reactive Planning
Final Thoughts
Many retirees are surprised by Social Security taxes, but with a proactive approach, you can control how much you owe. If you’d like to build a more tax-efficient retirement strategy, it’s worth reviewing your options with a financial professional.
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