How Taxes Can Eat Into Your Social Security Benefits—and What You Can Do About It

When most people think about Social Security, they picture a reliable monthly income stream that’s tax-free. Unfortunately, that’s not always the case. Depending on your other sources of income, up to 85% of your Social Security benefits may be taxable.

In this article, I’ll break down how Social Security taxes work, the thresholds you need to know, and strategies to minimize your tax bill in retirement.

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How Social Security Taxes Work

Social Security benefits aren’t taxed in the same way as regular income. Instead, the IRS uses something called “provisional income.”

Provisional income is calculated by adding:

• Your adjusted gross income (AGI)
• Plus any tax-exempt interest (like municipal bonds)
• Plus half of your Social Security benefits

This total determines how much of your benefits may be taxable.

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Key Income Thresholds

• Single Filers
  • Up to $25,000: No tax on benefits
  • $25,000–$34,000: Up to 50% taxable
  • Above $34,000: Up to 85% taxable
• Married Filing Jointly
  • Up to $32,000: No tax on benefits
  • $32,000–$44,000: Up to 50% taxable
  • Above $44,000: Up to 85% taxable

For example: A married couple with $40,000 of other income and $30,000 in Social Security could find that $25,500 of their benefits are subject to federal taxes.

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Why This Matters

Taxes can reduce the net income you actually keep in retirement. Many retirees are surprised when their tax bill cuts hundreds—or even thousands—out of their expected benefits.

And remember: in addition to federal taxes, some states tax Social Security benefits as well.

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Strategies to Minimize Social Security Taxes

1. Coordinate Withdrawals
   Plan carefully which accounts you draw from first. Reducing taxable withdrawals from IRAs or 401(k)s can lower provisional income.
2. Use Roth Accounts
   Withdrawals from Roth IRAs and Roth 401(k)s do not count toward provisional income. Strategic Roth conversions before retirement can be powerful.
3. Consider Income Timing
   Spreading out withdrawals and managing Required Minimum Distributions (RMDs) can keep you under key thresholds.
4. Leverage Annuities or Tax-Advantaged Products
   Certain retirement income tools can smooth out income and minimize spikes that trigger higher taxation.

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The Bottom Line

Social Security benefits are valuable, but without proper planning, taxes can reduce the amount you actually receive. The good news is that with the right strategies—coordinating withdrawals, using Roth accounts, and timing your income—you can often keep more of your benefits.