Millions of older Americans rely on Social Security to pay the bills in retirement. In fact, 21% of married seniors and 44% of unmarried seniors depend on those benefits for 90% or more of their income.

If you expect Social Security to constitute a major retirement income source for you, then it's important that you understand just how much money those benefits will give you. While you can estimate your monthly benefits by consulting your most recent earnings statement (which the Social Security Administration will mail to you if you're 60 or older; otherwise, you can access it online), keep in mind that the amount you're slated to collect may not be yours to keep in full. That's because Social Security income is taxable in retirement for some seniors.

Here's how to know what to expect for your benefits.

Older man and woman dining out

Image source: Getty Images.

Will you pay taxes on your Social Security income?

Whether your Social Security benefits will be taxed will depend on your total income and where you live during your golden years. First, let's talk federal taxes. If your benefits are pretty much your only source of retirement income, then they likely won't be taxed. But if you have other income sources, such as an IRA, 401(k), pension, or earnings from a business or part-time job, then there's a good chance you'll be liable for federal taxes on your benefits.

To see if that's the case, you'll need to calculate what's known as your provisional income. To do so, take your non-Social Security income, including tax-free income you collect (such as interest from municipal bonds), and add in 50% of your Social Security benefits. If your total lands between $25,000 and $34,000 and you're a single tax filer, or between $32,000 and $44,000 and you're a joint tax filer, then you could be taxed on up to 50% of your Social Security income. And if your provisional income totals more than $34,000 as a single tax filer, or more than $44,000 as a couple filing jointly, then you could be taxed on up to 85% of your benefits.

Where you live matters, too

Though the above income guidelines dictate whether you'll be taxed on Social Security at the federal level, you may face state taxes on your benefits, too. There are 13 states that tax Social Security to different degrees:

  • Colorado
  • Connecticut
  • Kansas
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Mexico
  • North Dakota
  • Rhode Island
  • Utah
  • Vermont
  • West Virginia

Of these 13 states, Minnesota, North Dakota, Vermont, and West Virginia are the only ones that don't offer some form of exemption for low- to middle-income seniors. If Social Security is your main or only source of retirement income, and you live in Colorado, Connecticut, Kansas, Missouri, Montana, Nebraska. New Mexico, Rhode Island, or Utah, then there's a good chance you'll get out of paying state taxes on your benefits.

Don't get caught off guard by taxes in retirement

Of course, Social Security is only one income source you may get taxed on during retirement. If you have savings in a traditional IRA or 401(k), withdrawals from that plan will be subject to taxes as well. The same generally holds true if you're collecting pension payments, though not always. And, of course, if you're working, you'll pay taxes on your wages, just as you did throughout your career.

The takeaway? Know what income you'll be taxed on during your golden years, and plan accordingly. The last thing you want to do is estimate your annual retirement income, only to forget about taxes and wind up with far less money -- and far more worries -- than you anticipated.