Social Security benefits are currently taxed

Even if your Social Security benefits originate from money you were already taxed on during your working years, they may still be considered taxable income.

Your "combined income," as the government defines it, includes half of your Social Security payment. It is this income that is used to calculate the portion of your benefit that is due to federal tax.

You may be required to pay income tax on up to 50% of your benefits if your total income is between $25,000 and $34,000 and you file individual federal taxes.

Up to 85% of your benefits could be subject to taxation if your combined income exceeds $34,000 and you both pay joint federal income taxes.

Up to 50% of your benefits may be liable to income tax if your income is between $32,000 and $44,000; up to 85% of your benefits may be subject to income tax if your income is $44,000 or higher.

Typically, the income tax brackets are updated each year to account for inflation. Social Security hasn't been given the same consideration because it has been treated as taxable income for almost 40 years.