When determining the taxable portion of Social Security benefits, what should be considered?

To determine the taxable portion of Social Security benefits, it is essential to consider the combined income of the taxpayer, which includes total income and half of the Social Security benefits received. This is known as "combined income," which is calculated by adding the taxpayer's adjusted gross income (AGI), non-taxable interest, and half of the Social Security benefits. The IRS uses this combined figure to assess whether any portion of the Social Security benefits is taxable.

This approach reflects the taxpayer's overall financial situation rather than merely relying on current year's income, averaging income over multiple years, or the specific type of Social Security benefit received. Each taxpayer may have different tax implications based on their total income, leading to varying levels of tax liability on their Social Security benefits. Therefore, considering both the benefits and the taxpayer's total income provides the accurate context needed to assess taxability correctly.