I'm Expecting $3,000 in Social Security Each Month. What Strategies Can Reduce My Tax Burden?

SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below.

When determining your income taxes in retirement and on your Social Security benefits, the IRS uses your “combined income” and filing status as the two main markers. At $36,000 a year from Social Security, none of your benefits would be taxable, since only half of your benefits are calculated into combined income. However most, if not all, retirees have additional income sources, such as retirement account withdrawals, a pension, part-time wages and more. When accounting for these as well, you may be subject to taxes on up to 85% of your total benefits. You may be able to manage this by using Roth accounts, getting income from non-taxable sources or reducing your income by working less or taking smaller withdrawals.

Are you looking for professional help with managing your retirement income and Social Security benefits? Speak with a financial advisor today.

How Social Security Benefits Are Taxed

If you receive Social Security retirement benefits, you may have to pay income taxes on them. To see whether you’ll need to, divide your Social Security income in half. Then add your adjusted gross income (AGI), plus any income from tax-exempt sources, such as municipal bonds. The result is called your “combined income” and it, along with your filing status, helps determine how much of your Social Security income is taxable.

For example, if you get $36,000 a year ($3,000 a month) from Social Security and have no other income, your combined income is $36,000 divided by 2, or $18,000. None of your benefits are taxable if your income is below $25,000 for a single filer or $32,000 for joint filers. So, in this case, you’d owe nothing to the federal government.

Odds are good, though, that you don’t rely only on Social Security. The Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2022 found 79% of retirees had one or more sources of private income. If you’re one of this majority, some of your Social Security could be taxable. Here’s how the brackets work:

• Single Filers

  • Combined income is less than $25,000: none of your benefits may be taxable

  • Combined income is between $25,000 and $34,000: up to 50% of your benefits may be taxable

  • Combined income is above $34,000: up to 85% of your benefits may be taxable

• Joint Filers

  • Combined income is less than $32,000: none of your benefits may be taxable

  • Combined income is between $32,000 and $44,000: up to 50% of your benefits may be taxable

  • Combined income is above $44,000: up to 85% of your benefits may be taxable