Published July 7, 2016
The quick answer is “it depends.” But, for the 33 percent of retirees who now rely more heavily on their Social Security benefits to sustain their lifestyle, the answer takes on even more significance. Generally, your income from Social Security is not taxable on its own; but when it’s combined with other sources of income for tax reporting purposes, a portion of your Social Security benefits, up to 85 percent, could be includable as taxable income. Unfortunately, over 40 percent of retirees aren’t aware that their benefits could possibly be taxed, and it is always a rude awakening when it happens.
Having an understanding of how Social Security benefits could be taxed might enable you to consider ways to reduce the impact. So the real question becomes, “under what circumstances are my Social Security benefits taxable?”
Generally, any income from employment, a pension, IRA withdrawals, interest on savings, even interest on tax exempt bonds is combined along with half of your Social Security income to determine the taxable portion. The only sources of income that are not included are monthly payments from an annuity or withdrawals from a Roth IRA.