This is one of the most-often asked questions by many people who will soon start receiving Social Security. It has become especially common recently as a growing number of Americans are continuing to work past the age when they can begin receiving Social Security benefits.\r\n\r\nWhy? Because the answer depends on whether or not you have any earned income other than your Social Security benefits.\r\n\r\nHow Much is Taxable?\r\n\r\nTo figure out whether you have to pay federal income tax on your Social Security benefits, you must determine the total amount of your combined income. This is calculated by adding your nontaxable interest and half of your Social Security benefits to your adjusted gross income (or AGI). Here\u2019s the formula:\r\n\r\nAGI + nontaxable interest + \u00bd of Social Security benefits Combined income\r\n\r\nIf you\u2019re single and your combined income is between $25,000 and $34,000 a year \u2014 or if you\u2019re married and file jointly and your combined income is between $32,000 and $44,000 a year \u2014 up to 50 percent of your Social Security benefits will be taxable.\r\n\r\nMeanwhile, if you\u2019re single and your combined income is more than $34,000 a year \u2014 or if you\u2019re married and file jointly and your combined income is more than $44,000 a year \u2014 up to 85 percent of your Social Security benefits will be taxable. No more than 85 percent of Social Security benefits is ever taxable, regardless of the amount of your earned income.\r\n\r\nExamples Help Illustrate\r\n\r\nConsider John, who is single and has combined income of $30,000 a year. He is eligible to receive $1,500 a month (or $18,000 a year) in Social Security benefits starting at the end of this year. If he chooses to claim these benefits, he will have to pay taxes on half of this amount, or $9,000. Since John is in the 12% tax bracket, he will pay a total of $1,080 a year in federal income tax on these benefits.\r\n\r\nNow consider Jane, who is married and has combined income of $50,000 a year. She is eligible to receive $2,000 a month (or $24,000 a year) in Social Security benefits starting at the end of this year. If she chooses to claim these benefits, she will have to pay taxes on 85 percent of this amount, or $20,400. Jane is also in the 12% tax bracket, so she will pay a total of $2,448 a year in federal income tax on these benefits.\r\n\r\nStates That Tax Social Security\r\n\r\nDepending on where you live, you might also have to pay state income tax in addition to federal income tax on your Social Security benefits. The following 13 states assess varying levels of state income tax on Social Security:\r\n\r\n \tColorado\r\n \tConnecticut\r\n \tKansas\r\n \tMinnesota\r\n \tMissouri\r\n \tMontana\r\n \tNebraska\r\n \tNew Mexico\r\n \tRhode Island\r\n \tNorth Dakota\r\n \tVermont\r\n \tUtah\r\n \tWest Virginia\r\n\r\nNote that West Virginia is phasing out state taxation of Social Security benefits starting in 2021.\r\n\r\nIf you do have to pay income tax on Social Security benefits, you can do so by making quarterly estimated tax payments or you having the Social Security Administration withhold federal taxes from your benefit payments. You\u2019ll do this by filing IRS Form W-4V and choosing a withholding percentage of 7%, 10%, 12% or 22%. You can\u2019t have a flat dollar amount withheld from benefits to pay federal income tax on Social Security benefits.\r\n\r\nHow to Minimize Taxes on Benefits\r\n\r\nPlanning ahead can help you minimize the amount of income tax you must pay on Social Security benefits.\r\n\r\nFor example, you can try to maximize the amount of taxable income you receive in the years before you start tapping benefits by withdrawing funds from tax-sheltered retirement accounts like, IRAs and 401ks. Also consider making after-tax contributions to a Roth IRA or 401k since distributions from these won\u2019t affect your combined income calculation.\r\n\r\nBe sure to talk to your tax advisor and personal financial planner for guidance in your specific situation.\r\nFor more information, contact a financial advisor.