7 Quiet Social Security Mistakes That Can Slash Your Refund Check
Written by
Daria Uhlig
Edited by
Angela Corry
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Come tax time, Social Security benefits are subject to different rules than other types of income. However, there are certain mistakes that can increase the amount of taxes you owe — and slash your tax refund as a result.
In order to protect your refund, avoid these seven Social Security mistakes.
Assuming Social Security Benefits Are Always Tax-Free
The IRS taxes as much as 85% of your benefit if your income exceeds certain thresholds. Failing to plan for that could trigger unexpected income tax.
To figure out if your Social Security is taxable, add one-half of your annual benefit to your income from other sources, including pensions, interest and investments. Your benefit is taxable if this combined income exceeds $25,000.
Married couples do their income calculations by adding one-half of each spouse’s annual benefit to their other income. The combined-income threshold for joint filers is $32,000.
Forgetting That Your State Taxes Social Security
If your state is on the following list from Fidelity, you might owe state income tax on your Social Security benefit even if you won’t pay federal income tax on it. If so, it can reduce your state tax refund.
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
Waiting Until Tax Day To Pay Income Tax
The Social Security Administration will withhold income tax from your Social Security benefits at your request. Withholding amounts range from 7% to 22% of your monthly benefit. Alternatively, you can make tax payments throughout the year to reduce your liability at tax time.
Forgetting Income Increases Might Affect Taxes on Your Social Security
Annual Social Security cost of living adjustments (COLAs) increase your income slightly. So can the required minimum distributions (RMDs) the IRS forces you to take from your retirement accounts beginning at age 73. The extra cash can push your income above the thresholds.
Using the Wrong Tax Treatment for a Lump Sum or Back Payment
The Social Security Fairness Act gave millions of Americans who previously were excluded from Social Security or who received reduced benefits retroactive increases and/or back payments.
Although you’ll report all the Social Security you received in 2025 on your tax return, the IRS lets you make a “lump sum election” to separately calculate back payments from a previous year. This method can reduce the amount of tax you owe on those back benefits.
Claiming Benefits Too Early
Claiming Social Security too early can hit you with a double whammy. First, collecting benefits while you’re still working or otherwise maintaining a higher level of income exposes your benefits to tax liability. Plus, if you claim before the full retirement age of 67, you’ll also permanently reduce your Social Security and miss out on delayed-retirement credits that increase your benefit 8% per year from ages 67 to 70, as this table from the Social Security Administration shows.
Skipping Professional Tax Planning After You Retire
The need for efficient tax strategies doesn’t end when you leave the workforce. Good tax planning can prevent you from making mistakes with your Social Security benefits that can lead to higher taxes and faster depletion of your savings.
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