Despite paying into Social Security throughout your working career, your retirement benefits aren’t necessarily tax-free income. In fact, up to 85% of your benefits are taxable, depending on your other sources of income. Several strategies exist for managing and potentially reducing these taxes, including timing retirement account withdrawals and using withdrawals from Roth accounts to pay retirement costs.

But what if you collect $2,100 in Social Security benefits each month? Will you owe taxes on these payments? The answer hinges on whether you have other income and how much.

A financial advisor can provide you with personalized guidance and help you create a plan to manage taxes in retirement. Connect with a fiduciary advisor who serves your area.

How Social Security Benefits Are Taxed

Your combined income, also known as your provisional income, determines whether your Social Security benefits will be taxed. Calculate your combined income by dividing your annual Social Security benefits in half and adding it to your adjusted gross income (AGI) from your tax return plus any nontaxable interest you have received.

After calculating your combined income, how your benefits are taxed vary based on how much combined income you have, as well as your tax filing status.

None of your benefits are taxable if your combined income is:

• Less than $25,000 as an individual filer

• Less than $32,000 if you’re married and file jointly

Up to 50% of your benefits are taxable if your combined income is:

• More than $25,000 and less than $34,000 as an individual filer

• More than $32,000 and less than $44,000 if you’re married and file jointly

Up to 85% of your benefits are taxable if your combined income is:

• More than $34,00 as an individual filer

• More than $44,000 if you’re married and file jointly

For example, a single filer who receives the maximum monthly benefit of $4,873 in 2024 would be taxed on up to 50% of their benefit even if they received no other income. That’s because $4,873 monthly is equal to $58,476 annually. Half this amount is $28,238, which is more than the $25,000 threshold for no taxation.

Using the IRS calculator, they could determine that $2,119 of their Social Security benefits would be taxable as ordinary income, using the appropriate marginal federal income tax brackets. For 2024, the tax bracket for this much income is 10%, so you would owe approximately $212.

If you need help planning for taxes or determining how much of your Social Security income will be taxable, consider working with a financial advisor.

Taxes on $2,100 in Monthly Social Security Benefits

If you collected $2,100 per month in Social Security, you likely wouldn’t have to worry about paying taxes on the money if it was your only source of income. Your combined income would simply be $12,600 ($25,200/2), which is below the threshold that triggers income taxes on a portion of your benefits.

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However, suppose you had additional income – $40,000 from 401(k) withdrawals, for example. Your combined income would be $52,600 ($40,000 + $12,600), which means up to 85% of your Social Security benefits would be taxed as an individual. Using the IRS Interactive Tax Assistant calculator, you would see that $20,310 of your benefits would be subject to income taxes.

Calculating your tax liability can be complex and confusing. That’s where having an expert like a tax advisor in your corner can help.

Tax Strategies

There are several ways you can potentially reduce the taxes you may owe on your Social Security benefits. However, before putting any of these strategies into practice, consider talking it over with a financial advisor and exploring potential alternatives.

• Reduce your additional income. If you can reduce your additional income by, for instance, withdrawing less from pre-tax IRA or 401(k) savings plans, you may be able to keep your combined income below the tax-free threshold. For example, in your case your benefits would only be exposed to taxation if you had additional income of more than $12,400. This amount added to $12,600, representing half your Social Security benefits, keeps you from exceeding the $25,000 threshold for Social Security benefit taxation.

• Withdraw from Roth accounts. Qualified withdrawals from Roth accounts are not taxable and do not increase your combined income. By withdrawing only from a Roth account, you can avoid having your Social Security benefits taxed. Additionally, Roth accounts are not subject to required minimum distributions (RMDs), which can otherwise increase your combined income. You might consider converting pre-tax accounts like IRAs to Roth accounts, though you will owe taxes on the converted amounts as ordinary income.

• Use cash or non-appreciated investments. Utilizing cash on hand or selling investments that have not appreciated in value can help pay expenses without increasing your combined income.

• Use qualified charitable distributions (QCDs). If RMDs push you over the income thresholds, you can reduce your RMDs by making QCDs. These distributions allow you to donate directly from your IRA to a charity, lowering your taxable income.

Bottom Line

At $2,100 a month, your Social Security benefits won’t be taxed unless you have enough additional income. If you file an individual tax return singly you can have up to $12,400 in additional income before triggering income taxes on your benefits. Remember, up to 85% of your Social Security may be taxable. Potentially helpful tax-reducing strategies include limiting withdrawals from pre-tax retirement accounts, using Roth accounts and selling unappreciated investments to generate cash to pay expenses.

Social Security Planning Tips

• A financial advisor can help you plan for Social Security benefits and integrate those payments into a comprehensive retirement income plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Knowing how much your benefits could be worth at different claiming ages is an important part of planning for Social Security. Luckily, SmartAsset’s Social Security calculator can help you estimate your future benefits based on when you plan on claiming them.

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