How Worried Should I Be About the 'Tax Torpedo'?
For most people, federal income taxes are straightforward during their working years because income is primarily from a paycheck. However, in retirement it can become much more complicated because your income may come from multiple sources with different tax characteristics.
A key component of your income in retirement is Social Security. A calculation based on your overall income dictates how much of your Social Security benefit is taxable. That calculated income (sometimes called "provisional" or "combined" income) is essentially half of your Social Security benefit plus your other gross income and any tax-exempt interest.
None of your Social Security benefits are taxable up to a certain threshold of provisional income .
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