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

The maximum percentage of Social Security benefits that can be taxed is 85%. This taxation level is determined based on the beneficiary's provisional income, which includes half of their Social Security benefits plus other income such as wages, interest, and dividends.

When a taxpayer's provisional income exceeds certain thresholds set by the IRS, this results in up to 85% of their Social Security benefits being subject to federal income tax. The thresholds are $25,000 for single filers and $32,000 for married couples filing jointly.

If provisional income remains below these limits, typically, none of the Social Security benefits are taxable. Therefore, understanding the significance of provisional income and the stipulated thresholds is essential for accurately determining the taxability of Social Security benefits. This is why 85% is the maximum percentage that can be taxed, reflecting the government’s policy on recognizing income levels when considering tax obligations on benefits.