What's the Difference Between How Social Security Benefits Are Taxed and Regular Income?

Social Security benefits have a unique tax formula that's unlike any other type of income. Regular income like wages, interest, and capital gains is generally taxable in full, but Social Security benefits are only partially taxable depending on your total income. The IRS uses your combined income — which is your adjusted gross income, plus non-taxable interest, plus half of your Social Security benefits — to determine how much of your benefit is taxable. If your combined income is below $25,000 (single) or $32,000 (married), your benefits are completely tax-free. Between $25,000 and $34,000 (single), up to 50% of your benefits may be taxable; above $34,000, up to 85% may be taxable. Planning your retirement withdrawals carefully — for example, by managing which accounts you draw from — can keep your combined income below these thresholds and reduce or eliminate tax on your Social Security benefits.