You can only spend the dollars you keep, so you need to understand the rules about taxes on your Social Security benefits. Social Security benefits haven’t always been taxable. From the first Social Security payment in January 1937 all the way to 1983 Social Security benefits were completely tax free. But that all changed with the passage of 1983 Amendments to the Social Security Act. Under this new rule, up to 50% of Social Security benefits became taxable for individuals with a certain level of income. 10 years later, the Deficit Reduction Act of 1993 expanded the taxation of Social Security benefits. Under this Act, an additional bracket was added where up to 85% of Social Security benefits could be taxable above certain thresholds.The combination of these two laws left us with the current tax structure on Social Security benefits where today, somewhere between 0% and 85% of your Social Security payment will be included as taxable income. In order to determine how much of your Social Security benefits will be taxable, you first have to know how to calculate your “combined income” – a measurement of income used specifically for this purpose.

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