Once you're of retirement age, you can apply for Social Security retirement benefits. These benefits provide supplemental income for qualified retirees, replacing a percentage of your pre-retirement income based on your lifetime earnings.

On average, retirement beneficiaries receive about 40% of their pre-retirement income from Social Security. It's been about 40 years since President Reagan passed the first federal income taxes on these benefits.

Keep reading to learn more about how your Social Security benefits are taxed at the federal and state level, and tips for paying taxes on these benefits.

What is taxable Social Security?

Depending on income you have in addition to your Social Security benefits, you may be required to pay federal income taxes on those benefits, though you'd only pay tax on up to 85% of the benefit. Note that Social Security benefits include monthly retirement, survivor, and disability benefits, but do not include supplemental security income (SSA) payments as those are not taxable.

According to the Social Security website, you'll have to pay taxes if you:

File a federal tax return as an "individual" and your combined income* is

• Between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits
• More than $34,000, up to 85% of your benefits may be taxable

File a joint return, and you and your spouse have a combined income* that is

• Between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits
• More than $44,000, up to 85% of your benefits may be taxed

Are married and file a separate tax return, you'd probably pay taxes on your benefits

*Combined Income: Your adjusted gross income (AGI) + nontaxable interest + 1/2 of your Social Security benefits

DEFINITION BOX: Adjusted gross income (AGI) includes income from Social Security and all other sources, such as wages, self-employed earnings, interest, dividends, required minimum distributions from qualified retirement accounts, and any other taxable income.

For example, say you were an individual taxpayer who received $16,000 in Social Security. You also have $25,000 in "other" income. Added together, your gross income is $41,000. However, your combined income is only $33,000 (other income plus half of your Social Security benefits). This puts you within the $25,000-$34,000 range for 50% of your benefits being taxed.

So, half of the difference between that income and the $25,000 threshold is your taxable amount:

$33,000 – 25,000 = $8,000; $8,000/2 = $4,000

In this example, your taxable amount is $4,000.

How to determine if your Social Security is taxable

As you can see from the example above, this can get very complicated quickly, so it may be helpful to work with a tax professional to ensure you're filing the correct amounts and paying the right amount of taxes. You can also use the IRS's Interactive Tax Assistant (ITA), which is a tool that provides answers to many taxes law questions specific to your individual circumstances. It can determine:

• If you must file a tax return
• Your filing status
• If you can claim a dependent
• If the type of income you have is taxable
• If you're eligible to claim a credit
• If you can deduct expenses

Or, to figure out on your own if your Social Security is taxable, add up your gross income for the year, including Social Security, and:

• If you have little or no income in addition to Social Security, you won't owe taxes
• If you're an individual filer and have at least $25,000 in gross income (including Social Security), up to 50% of your Social Security benefits may be taxed. If you're a couple filing jointly, the minimum is $32,000
• If your gross income is $34,000 or more (or $44,000 or more for couples filing jointly), then up to 85% may be taxable

You can also learn more about what you'd owe through Social Security's publications about retirement benefits. And, as always, the best resource for tax information is your accountant

Paying taxes on Social Security

You will get a Social Security Benefits Statement (Form SSA-1099) in January each year, which shows the amount of benefits you received in the previous year. Use this statement when completing your federal income tax return to understand if your benefits are subject to taxes.

You can also use this IRS worksheet to figure out your taxable benefits.

If you do have to pay taxes on your Social Security benefits, you have two options:

• Make quarterly estimated tax payments to the IRS
• Have federal taxes withheld from your benefits

If you opt to have federal taxes withheld, you must complete the Form W-4V and choose whether you'd like 7%, 10%, 12%, or 22% of your monthly benefit withheld for taxes.

Additionally, there are 13 states that tax Social Security benefits at the state level:

• Colorado
• Connecticut
• Kansas
• Minnesota
• Missouri
• Montana
• Nebraska
• New Mexico
• North Dakota
• Rhode Island
• Utah
• Vermont
• West Virginia

These taxes can vary by state, so check with your local agency to better understand your state's rules.

Additional resources

• ClearMatch Medicare: Find a Medicare Plan
• Medicare.gov: Costs
• Social Security Administration: Extra Help