Editors' pick: Originally published Nov. 17.
If there's a widely held - but false - belief about Social Security, it is that the monthly check (the average amount is $1,341, and the maximum amount is about $3,576) is tax free. Don't tell that to the 40% of beneficiaries who pay federal income tax on the check. There's even a special IRS publication devoted to the Social Security tax bite.
Additionally, 13 states tax Social Security: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia.
Don't think you don't have to file an IRS return because you collect Social Security. If it's your only income - 43% of singles use Social Security for 90% of their income - you in fact don't have to file. But when other income enters the picture - if you earned more than $11,850 in the most recent tax year - you do.
The question is: how to avoid paying income tax on the monthly Social Security check? The easy part of the answer is live in one of the 37 states plus the District of Columbia where Social Securityis not subject to income tax.
The harder part is finding ways to duck the federal levee - which may kick in on as little "combined income" as $25,000 for an individual and $32,000 for a couple. Understand, however, that experts are ready with pointers that may well legally minimize, even eliminate federal income tax on Social Security.