Weekend Reading: Social Security is Taxable? Don’t Be Caught Off Guard

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
Weekend reading social security taxes Weekend reading social security taxes
Weekend Reading

Depending on your financial situation, you may find you owe less or more to Uncle Sam in retirement, but don’t overlook the taxation of Social Security benefits too. Primarily, the tax affects those with higher incomes, including anyone still working or receiving substantial retirement income.


How it’s calculated: Determining whether you owe taxes on your Social Security benefits involves calculating your "combined income," which includes adjusted gross income, nontaxable interest and 50 percent of your Social Security benefits. Your taxation percentage varies based on income level, ranging from zero percent for lower income to 85 percent for higher income. It's crucial to be aware of this tax as you plan for retirement, along with other potential taxes on drawdowns from tax-deferred accounts, required minimum distributions (RMDs) and Medicare premium surcharges.

Tax mitigation: You can manage the Social Security tax by either having taxes withheld from your benefits or by making estimated quarterly tax payments throughout the year. Beyond this, however, you should consider the broader tax impact on your retirement savings, where strategies like qualified charitable distributions (QCDs), Roth conversions or leaving assets in a 401(k) if still working can help reduce your overall tax burden.

Taxes will be abundant in your retirement. As my grandfather always said, “It’s not about how much you make, it’s about how much you keep.”