Many about-to-be retired people are surprised to learn that the benefits they receive from Social Security can be subject to taxes. Years ago, very few people saw their Social Security benefits taxed. However, today, a full third of all Social Security recipients are taxed and that number will grow to 43 percent in just 10 years.
The reason is that the income limits for taxation of benefits were established years ago and, like the alternative minimum tax (AMT) that so many of us get hit with, the limits were not indexed for inflation.
These days, if you are single and half of your Social Security benefit plus all the other income you have exceeds $25,000, up to half of the benefits are taxable. If half your Social Security benefit plus all other income exceeds $34,000, 85 percent of your benefits are taxable.
If you are married and half your Social Security benefit plus all other income is between $32,000 and $44,000, up to 50 percent of the benefits is taxable. If your income exceeds $44,000, 85 percent of your benefits are taxable.