Is Social Security Income Taxable?

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After you’ve worked hard for your whole career, you might be eager to enjoy the benefits of your Social Security payouts. Assuming you’ve earned the requisite 40 “credits” — typically earned after 10 years of work — you can file for benefits as early as age 62, or as late as age 70. Even before you retire, you can look up your anticipated benefits on the Social Security Administration website. But there’s something important that you should factor into your calculation — that your benefits may be considered taxable income. To make matters more confusing, the short answer to the question of whether or not Social Security benefits are taxable is “they can be,” and the long answer is a bit more complicated. But the truth is that about 40% of people who get Social Security have to pay federal income taxes on their benefits.

Read: 5 Things You Must Do When Your Savings Reach $50,000

Typically, Social Security income won’t be taxed if that check is your only retirement income. However, if you have other retirement accounts like a 401(k) or still have work income, you’ll likely have to pay federal income taxes to the IRS. Income taxes on Social Security also vary by state.

Social Security benefits include monthly retirement, survivor and disability benefits but not supplemental security income payments. SSI payments are not taxable.

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When Is Social Security Income Taxed?

Social Security income is only taxed when you earn above certain annual limits. This is why most beneficiaries that only live on their Social Security check receive that money tax-free, as it is in most cases below the annual threshold. However, your Social Security benefits are never 100% taxable, no matter how much money you earn. How much of your Social Security income is taxable? Depending on your income, either 50% or 85% of your benefits will be taxable.

Calculating Your Provisional Income

You might wonder how much a retired person can earn without paying taxes. To find that out, you would need to figure out your provisional income. Aside from filing status, the biggest factor in figuring out Social Security benefit taxes is your income level outside of Social Security benefits.

Provisional income is defined as your adjusted gross income plus nontaxable interest. Nontaxable interest is interest income that is tax-exempt but you would still report on your federal tax returns. Your provisional income includes pensions, wages, interest, dividends and capital gains.

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For example, assume your adjusted gross income is $12,000, you are paid $5,000 in nontaxable interest, and you receive $20,000 in Social Security benefits. By halving your Social Security income and combining those values, you would calculate that your provisional income is $27,000 ($12,000 + $5,000 + $10,000).

Calculating Your Social Security Income Taxes

After provisional income, the second major factor in calculating taxable Social Security income is filing status.

If you are single or married filing separately, regardless of whether you lived with your spouse:

  1. Halve your Social Security income.
  2. Add it to your total other income.
  3. If your total combined income for the year after the above calculation is $25,000 to $34,000, you may owe taxes on up to 50% of your Social Security income.
  4. If your combined total income is above $34,000, up to 85% of your Social Security income may be taxable.

If you are married filing jointly:

  1. Take half of your Social Security income.
  2. Take half of your spouse’s Social Security income.
  3. Add both of the above figures to your combined total income.
  4. If you and your spouse’s total combined income after the above calculation is between $32,000 and $44,000, you may owe taxes on up to 50% of your Social Security income.
  5. If the total annual income is above $44,000, up to 85% of your Social Security income may be taxable.

You can also use the IRS worksheet from Publication 915 to calculate how much of your Social Security benefit is taxable. This worksheet is also in the instructions on Form 1040 and 1040-SR.

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Social Security Benefit Taxes by State

Aside from federal tax rates, the way Social Security is taxed also varies by state. Only 12 states tax Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia. The chart below shows how different states handle Social Security taxes.

Taxation States
Follows federal tax practices UT
State tax practices with modifications MT, NM
State exemptions for Social Security tax based on factors like age and income level CO, CT, KS, MN, MO, NE, RI, VT, WV
No Social Security tax AL, AR, AZ, CA, DC, DE, GA, HI, IA, ID, IL, IN, KY, LA, MA, MD, ME, MI, MS, NC, NH, NJ, NY, OH, OK, OR, PA, SC, TN, VA, WI
No state income tax AK, FL, NV, SD, TX, WA, WY

State Social Security taxation varies greatly by state and can often be complicated. In Colorado, for example, beneficiaries younger than 65 can exclude up to $20,000 in benefits from their income, along with other retirement income. But beginning in 2022, beneficiaries 65 and older can deduct all federally taxed Social Security income — previously, there was a $24,000 limit.

In Connecticut, single filers with AGIs of less than $75,000 and married filers with AGIs of less than $100,000 can fully exempt all of their Social Security income. But even those who exceed these thresholds can still deduct 75% of federally taxable Social Security benefits on their return.

Other states have their own unique tax structures. You should ensure you’re in compliance by consulting with your state tax board.

Reporting Your Social Security Income

To report your Social Security income, you can use Form 1040 or 1040-SR. If you receive Social Security income, you will likely get a form from the Social Security Administration called SSA-1099, which has your total benefit amount received for the year in box 5. Enter the total on line 6a and the taxable portion on line 6b. If no amount is taxable, enter -0- on line 6b.

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If you have to pay taxes, you can simplify payment in two ways. First, you can make quarterly payments to the IRS rather than paying it all in one lump sum during tax season. You can also have federal tax automatically withheld from your Social Security benefits by filling out Form W-4V or calling the IRS toll-free number at 800-829-3676.

Keep in mind there are only four specific Social Security income withholding percentages allowed: 7%, 10%, 12% or 22%.

How To Reduce Social Security Taxes

Are there ways to avoid paying taxes on Social Security income? Social Security is taxable for most Americans, but there are ways to minimize the amount of taxes you pay, including some retirement account strategies. Although it’s likely not reasonable to try and stay below the taxable thresholds, as the figures are close to the poverty line in many states, it does make sense to reduce taxable income.

Here are a few things you could do to limit the amount you pay:

  • Contribute after-tax dollars to Roth IRA and Roth 401(k) accounts, so future withdrawals from those accounts are not taxed.
  • Withdraw traditional IRA and 401(k) retirement account funds before retirement or before taking Social Security income so it’s not factored into provisional income. You can take penalty-free withdrawals from IRA and 401(k) accounts at 59 1/2 years old, while Social Security benefits aren’t paid in full until you turn 67.
  • If feasible, consider moving to a different state. Most states don’t tax Social Security income, but 12 do, as listed above.

History of Social Security Taxation

Is Social Security taxable? Many Americans think that it is nontaxable and they’re not entirely wrong — historically speaking, Social Security has been tax-free longer than it has been taxable. In fact, it wasn’t until 1984 that Social Security became taxable. Before that, benefits were completely tax-free. The rationale for the change in policy was that while workers should not be taxed on money they have contributed to the program — which would essentially mean that money was taxed twice — any excess above what workers contributed should be considered taxable income. The Social Security Administration undertook a rigorous analysis to attempt to determine how much of an average recipient’s benefit was directly paid by the beneficiary, and that amount was determined to be about 15%. Thus, in many cases, 85% of Social Security income is now taxable.

FAQ

  • At what age is Social Security no longer taxed?
    • Social Security tax is ongoing, there is no age at which it will not be taxed.
  • Why is Social Security taxed twice?
    • Most people will not be taxed twice on Social Security benefits. If you had higher than average earnings while working and you were subject to an 85% tax, then you may be paying taxes twice. The first time is when you paid after-tax money into the Social Security system and the second time is when you paid taxes on Social Security benefits in retirement.

John Csiszar contributed to the reporting for this article.

Information is accurate as of Nov. 7, 2022. 

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About the Author

Brenda Zhang is a technology, finance and game writer with over a decade of writing experience and too many blogs to count. She has worked in biology labs, psychology labs, tech startups and big corporations. A San Francisco-based software engineer by day and an interdisciplinary writer by night, she connects her seemingly unrelated experience in multiple fields to reveal new insights.
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