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Will clients pay taxes on Social Security benefits? Many Americans believe that Social Security is untaxed, and up until the early 1980s, it wasn’t. But reform efforts in those days implemented a tax in some situations. At most, retired clients will see 85% of their Social Security benefits subject to the tax, depending on their filing status and combined income, according to this article on personal finance website Motley Fool. The key is a taxpayer’s modified income. To calculate that number, first take any outside income other than Social Security benefits, including work income, interest, dividends, and taxable gains from investments, municipal bond interest and other income sources such as taxable pensions or rental income. Once that’s tallied, add half the Social Security benefits for the year. The final number you get determines whether or not you'll have to deal with including some of your benefits as taxable income. Retirees may owe taxes on as much as 85% of their Social Security benefits.

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