After decades of having Social Security taxes withheld from your paycheck, you may not expect to pay taxes on the benefits you’ve earned. But if you have other sources of income, such as a job, a pension or withdrawals from tax-deferred retirement savings plans, there’s a good chance you’ll pay taxes on up to 85% of your benefits. Depending on where you live, your state may tax your benefits, too.
The government started taxing a portion of Social Security benefits 40 years ago as part of an overhaul designed to shore up the program’s finances. Legislation signed by President Ronald Reagan in 1983 imposed taxes on up to 50% of benefits if a retiree’s income exceeded specific limits. Ten years later, President Bill Clinton signed legislation that made up to 85% of benefits taxable for retirees whose earnings exceeded a second income threshold.
