What percentage of Social Security benefits may be taxed based on the beneficiary's annual income?

Social Security benefits may be taxed up to 85% depending on the beneficiary's annual income. This taxation threshold is determined by the combination of the beneficiary's adjusted gross income, nontaxable interest, and half of their Social Security benefits.

When a taxpayer's combined income exceeds certain thresholds, more of their Social Security benefits become subject to federal income tax. Specifically, if an individual's income is above those limits, up to 85% of their Social Security benefits will be included in their taxable income. This is a significant aspect of tax planning for individuals reliant on Social Security, as understanding how their overall income affects their tax liability can help them make more informed financial decisions.

The reason that the other options do not represent the correct figure is based on the structure of Social Security taxation rules defined by the IRS, which clarify the maximum portion that can be taxed at 85%, rather than higher or lower percentages.