When it comes to Social Security, there's often confusion and misinformation about how taxes come into play. One common misperception is that Social Security benefits are entirely tax-free. However, it’s been the rule for many years that some portion — in some cases, up to 85% — of your Social Security benefits can be taxable, depending on your income.
Taxes on Social Security benefits
How much of your Social Security benefits are taxed varies. So, it is crucial to understand how taxes on your benefits work and how they can affect your financial situation.
To get you started, here are five things to know about the ins and outs of Social Security taxes.
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1. Some Social Security is subject to tax
First, not all of your Social Security benefits are subject to tax. The portion of your benefits that may be taxable depends on your income.
The IRS uses a tiered system based on “combined income.” (Combined income is your adjusted gross income plus nontaxable interest and half of your Social Security benefits from the year.) The net amount of Social Security benefits you receive is reported in Box 5 of your Social Security benefit statement (Form SSA-1099).
According to the IRS, your benefits may be taxable if the total of your combined income is greater than the base amount for your filing status.
| Combined Income | Social Security Tax Amount |
|---|---|
| Under $25,000 (single) or $32,000 (joint filing) | No tax on your Social Security benefits |
| Between $25,000 and $34,000 (single) or $32,000 and $44,000 (joint filing) | Up to 50% of Social Security benefits can be taxed |
| Above $34,000 (single) or above $44,000 (joint filing) | Up to 85% of benefits can be taxed. |
*Single includes single, head of household or qualifying widow or widower
- If your combined income is under $25,000 (single) or $32,000 (joint filing), there is no tax on your Social Security benefits.
- For combined income between $25,000 and $34,000 (single) or $32,000 and $44,000 (joint filing), up to 50% of benefits can be taxed.
- With combined income above $34,000 (single) or above $44,000 (joint filing), up to 85% of benefits can be taxed.
Base amounts for the different filing statuses are:
- $25,000: For single, head of household, or qualifying surviving spouse
- $25,000: For married filing separately and lived apart from your spouse for the entire year
- $32,000: Married filing jointly
- $0 if you're married, filing separately, and lived with your spouse at any time during the tax year. (This means you will likely pay taxes on your benefits.)
Note: If you're married and file a joint return, you and your spouse must combine your incomes and Social Security benefits when figuring out the taxable portion of your benefits. That’s true even if your spouse didn't receive any benefits.
It's also a common misconception that tax rules for Social Security apply only to retirement benefits. But benefits from Social Security trust funds, including survivor and disability benefits, are subject to tax rules. However, Supplemental Security Income (SSI) payments are not taxable.
The IRS provides an online tool to help you determine how much, if any, of your Social Security income is taxable.
2. Your income matters most
You can see from the tiered system how much your income matters. However, there are a lot of misconceptions about Social Security benefits becoming tax-exempt when recipients reach a certain age.
In fact, it's mostly your income and filing status (not your age) that determine whether you pay income taxes on your benefits — and how much.
3. You can have tax withheld if you want
If you are worried about owing taxes on your Social Security benefits, you can choose to have federal taxes withheld from your monthly Social Security payments. By having taxes withheld, you prepay a portion of your tax bill.
The withholding options are 7%, 10%, 12%, or 22% of your benefits. You can select this option when you apply for Social Security or by completing and submitting IRS Form W-4V.
If you prefer, you can also make quarterly estimated tax payments to cover anticipated tax liability.
4. Social Security COLA increase can impact your taxes
The taxes on Social Security can be impacted by the cost-of-living adjustment (COLA). COLA increases can cause some recipients to move into a higher federal income tax bracket — particularly when inflation is high like it is now.
The Social Security COLA for 2024 was just released and is 3.2%. This is a significant drop from the 2023 COLA of 8.7%, which was the highest COLA in over 40 years.
5. Some states tax Social Security benefits
Social Security benefits are not taxed in most states, but 11 states do tax Social Security benefits. Those include Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont.
Note: New Mexico technically taxes Social Security benefits, but many retirees won’t pay a dime to the state at tax time. That’s because legislation passed last year provides higher income thresholds for exempting Social Security benefits.
Some state criteria for determining income tax are more generous than the federal government's. That can mean higher income thresholds (as in the case of New Mexico) or higher deductions and exemptions that can lower the tax burden for taxpayers.
Social Security benefits and income tax: Bottom line
Knowing how Social Security and taxes work is vital to making informed financial decisions in retirement. Since Social Security benefits can have tax implications, it's important to plan to avoid surprises.
Seeking the advice of a trusted tax professional can help you manage your income tax liability.
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