Here's how it works:
According to the IRS, Social Security benefits are generally not taxed if you are single and half of your benefits, plus any additional income, is less than $25,000 ($32,000 if married and filing jointly). However, if half of your benefits, plus additional income is more than $34,000 (for singles) or $44,000 (if married and filing jointly), then 85% of your benefits may subject to income tax.1
To get a better idea of how much of your Social Security benefits may be taxed when you retire, you need to do some math to determine what your combined total income will be. There are some handy online calculators to help you with this process. Keep in mind that Social Security considers the total of your adjusted gross income, any non-taxable interest, plus one half of your Social Security benefits to determine what portion of your Social Security benefits will be subject to income taxes. To help you pencil out your potential taxable income, try using the IRS Social Security Benefits Worksheet or other handy online calculators.
Retirement planning
If after you've crunched the numbers and feel that you need to come up with a better plan, then it may be time to make an appointment with a qualified tax professional or financial planner who can provide you with options that may help you reduce your taxes when you begin drawing your retirement income.
Disclaimer: This article is meant to present an overview of how Social Security taxation works in retirement, and not meant to provide or imply any type of tax-planning or financial advice.
1. https://taxmap.irs.gov/taxmap/pubs/p915-002.htm#en_us_publink100097889
