Individuals may receive a variety of income when they retire. Different tax rules apply, depending on the type of income involved. Rules may vary for federal and state income tax purposes. And, starting this year, retirement income can impact the additional Medicare surtax on net investment income. Here is a roundup of the key tax rules for retirement income.
Social Security Benefits
Prior to 1983, Social Security benefits were always tax-free. Now Social Security benefits are includible in gross income at zero, 50 percent, or 85 percent, depending on overall income (including tax-free interest on municipal bonds and one-half of Social Security benefits), technically called "provisional income" (Code Sec. 86). The applicable income limits on provisional income for each of these inclusion rates varies with filing status.
