Taxation of Social Security Benefits

You've reached the age when you can begin collecting Social Security. When tax time rolls around, you may be wondering if you have to pay income tax on your Social Security benefits. Unfortunately, the answer isn't a simple yes or no. Your tax liability depends on other details about your situation. Social Security benefits might be either non-taxable or partially taxable.

If Social Security Is Your Only Income

You almost certainly won't have to pay federal income tax on your Social Security benefits if they are your only source of income. That means your Social Security income probably isn't taxable if you never got around to investing in a 401(k), if you don't rent out a property for profit, or if you've given up working entirely. These are just examples—the point is that you have no other form of income from any source.

In some cases, this might mean you don't even have to file a tax return. You should always check with a tax professional, though, before you skip filing altogether.

If You Have Income in Addition to Social Security

A portion of your benefits may be taxable if you have other sources of income in addition to your Social Security benefits. The taxable portion will be either 50% or 85% of your benefits. Which it is depends on the rest of your income.

To figure out your tax liability, you must first calculate your "combined income" and then compare it to the base amounts in the chart below. Your combined income is your total income from all other sources, including tax-exempt interest, plus half your Social Security benefits.

These base amounts are used in figuring the taxable portion of your Social Security benefits. When a person's income crosses the base amount threshold, but not the additional amount, then they will pay taxes on 50% of their Social Security income.

An Example

Let's say that you collect $15,000 a year in investment income. You continue to work one day a week, and you earned $7,000 doing so over the course of the tax year. You collected $18,000 a year in Social Security retirement benefits. Half of that comes out to $9,000.

Your combined income is, therefore, $31,000 ($15,000 investment income + $7,000 wages + $9,000 Social Security benefits). If you're single, that means you'll owe taxes because $31,000 crosses the single-filer threshold of $25,000.

If you're married and filing a joint tax return, and your spouse hasn't earned any additional income (which means that your $18,000 Social Security income includes theirs, as well), then you would not owe taxes because the threshold for married couples is $32,000.

You can potentially make some adjustments to your income to avoid crossing that threshold. For example, you might want to give up that one-day-a-week job if it looks like your investment income and half your benefits are going to nudge you up against that provisional income threshold.

Talk to a tax professional to understand your potential tax liability if you have multiple sources of retirement income. They can help you find out how much of your earned income is actually going into your pocket after accounting for all taxes, not just taxation of your Social Security benefits.

Additional Amount Thresholds

As you may have noticed in the chart above, there's another column that lists the "additional amount." The additional amount marks the point at which the higher tax liability kicks in.

The example scenario of $31,000 combined income crosses the base amount threshold for a single filer. But it doesn't cross the additional amount threshold of $34,000. That means, in this example, you'll only pay taxes on 50% of your Social Security income.

If your combined income were to cross that additional amount threshold of $34,000, you would have to pay taxes on 85% of your Social Security income.

Rules for Married Couples

The income thresholds for married couples filing together are $32,000 for the base amount and $44,000 for an additional amount.

For married couples who file separate tax returns, it all depends on whether they spent any part of the year living together. If you lived in the same household as your spouse at any time during the tax year, this reduces your base amount to zero. You'll almost certainly pay taxes on some portion of your Social Security benefits.

Married couples who lived apart from each other throughout the entire year can use the same base amount as single filers, $25,000.

In either case, whether you're married or single, the taxable portion of your Social Security benefits cannot exceed 85% of your total benefits.

Withholding on Social Security Benefits

You can elect to have federal income tax withheld from your Social Security benefits if you think you'll end up owing taxes on some portion of them. Federal income tax can be withheld at a rate of 7%, 10%, 12%, or 22% as of the tax year 2022. You're limited to these exact percentages—you can't opt for another percentage or a flat dollar amount.

If you'd like the government to withhold taxes from your Social Security income, file Form W-4V, the Social Security Withholding Tax Form. This will let the Social Security Administration know exactly how much tax you would like to have withheld.

State Taxes on Social Security

Over half of the states, in addition to Washington D.C., either do not collect income tax or do not factor Social Security income into those tax considerations, according to the Tax Foundation. The remaining states may tax Social Security income, but they don't all handle taxes the same way. Some of these states will tax up to the same 85% of benefits as the federal government. Others tax Social Security benefits to some extent but offer breaks based on your age and income level.

Consider touching base with a tax professional to determine what, if any, tax breaks you might qualify for locally.

Frequently Asked Questions (FAQs)