Over 90 percent of people ages 65 and older receive Social Security benefits, according to the Social Security Administration. For almost 25 percent of married beneficiaries and over 40 percent of single beneficiaries, SSA benefits represent more than 90 percent of their total income.
So do you have to pay taxes on Social Security benefits? The answer is that it depends. You will owe taxes on between 0 and 85 percent of your Social Security benefits, depending on your combined income and filing status. Knowing how much of your benefits will be taxable can help you budget.
Calculating Your Provisional Income
Combined income, sometimes referred to as provisional income, is an Internal Revenue Service tax term that includes your adjusted gross income from your tax return plus nontaxable interest and one-half of your Social Security benefits. For example, say your AGI for the year is $19,000, and you are paid $5,000 in nontaxable interest and receive $24,000 in Social Security benefits. Your combined income equals $36,000: $19,000 + $5,000 + $12,000, which is half of the $24,000.
Calculating Percentage of Taxable Social Security Benefits
The percentage of your Social Security benefits that you must pay tax on depends on your filing status and income level.
For single filers, including married filing separately when you lived apart for the entire year, the following applies:
- If your combined income falls between $25,000 and $34,000, up to half of your Social Security benefits can be taxable.
- If your combined income exceeds $34,000, up to 85 percent of your benefits can be taxable.
For joint filers, the following applies:
- If your combined income falls between $32,000 and $44,000, up to half of your Social Security benefits can be taxable.
- If your combined income exceeds $44,000, up to 85 percent of your benefits can be taxable.
If you are married filing separately and lived together for any part of the year, up to 85 percent of your Social Security benefits might be included in your taxable income regardless of your combined income.
Reporting Social Security Benefits on Federal Income Taxes
If you collect Social Security benefits, you will receive a Form SSA-1099 at the end of the year showing the benefits paid to you. The form also shows how much, if any, was withheld from your benefit payments for federal income tax purposes. You report the total amount of benefits, found in Box 5 of Form SSA-1099, on Line 14a of Form 1040A or Line 20a of Form 1040 income tax return. You report the taxable portion of your benefits, either as calculated by your tax software or using the worksheets in IRS Publication 915, on Line 14b of Form 1040A or Line 20b of Form 1040. If you are a Social Security beneficiary and do not report your benefits on your income tax, you could be subject to an IRS audit.
The taxable portion of your Social Security benefits is included in your taxable income and taxed as ordinary income. So, the tax rate applied to your benefits will vary depending on your other income. You do not have to pay FICA taxes — the Social Security tax and Medicare tax — on your Social Security benefits because they are not considered earned income.
Reporting SSA Benefits on State Income Taxes
The answer to “Are Social Security benefits taxed?” could be different on your state income tax return. Only 13 states tax Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia, according to AARP. Those who live in any other state will not pay state income tax on their SSA benefits.