Social Security Tax

IF YOUR INCOME IS high enough, between 50% and 85% of your Social Security retirement benefit may be taxable. Don’t be confused: There isn’t an 85% tax rate on Social Security. Rather, we’re talking about 85% of your benefit being subject to federal income taxes.

Will you get hit with this tax? Start by calculating your combined income, which is your adjusted gross income, plus any municipal bond interest and half your Social Security benefit. Your adjusted gross income would include distributions from a traditional IRA, but not from a Roth.

If you file as a single individual or head of household, and your combined income is between $25,000 and $34,000, up to 50% of your benefit may be taxable. If your combined income is above $34,000, up to 85% of your benefit may be subject to tax.

If you are married filing jointly, up to 50% of your benefit may be taxable if your combined income falls between $32,000 and $44,000, and up to 85% may be taxable if your combined income is above $44,000.

In the past, most Social Security recipients didn’t pay tax on their benefit. But that’s changing—because the various thresholds aren’t indexed for inflation, so more and more folks will find themselves paying the tax.

Next: Required Distributions

Previous: Taxes in Retirement

Articles: Losing Benefits, Getting Squeezed, That Monthly Check, Anti-Social Security and Double Trouble