If you think that your Social Security benefits are not taxed for Federal income tax, think again. When you worked, you paid taxes on your earnings including the amount you contributed to your Social Security. So, you think you don’t have to pay taxes again when you are receiving Social Security benefits, right? Wrong. Your Social Security benefits can be taxed under certain conditions. If you have substantial taxable income from other sources including 401(k) or 457 plans, IRAs, dividends, self-employment, pensions, and investment interest, your Social Security benefits will be subject to taxes. This practice started in 1983.

If your combined income in retirement, including one half of your Social Security benefits and income from all other sources, is more than $25,000 for an individual or $32,000 for married filing a joint return, then 85 percent of your Social Security benefits will be subject to Federal income tax. If you are faced with this, to avoid paying a hefty sum when you file your Federal income tax return, you need to plan in advance. You can either ask Social Security Administration to withhold Federal income tax from your monthly benefit check or pay estimated tax every quarter.