With 40 to 60 percent of Baby Boomers reporting that Social Security will make up the largest percentage of their income after retirement, understanding Social Security tax liabilities is vital for effective retirement planning. While individuals who earn below $25,000 or couples who earn less than $32,000 a year are exempt from federal taxes, Social Security recipients who exceed these limits may be subjected to both state and federal taxes.
As of 2020, 13 states levy a tax on Social Security income, although all limits are equal to or higher than federal exemption limits. Retirees who will receive income from several sources, such as pension or investment dividends, should consult with a retirement planning specialist.