Three Ways Your Social Security Benefits in Retirement Could Be Taxed Higher

Capitol Building with an hourglass in the foreground and a Social Security card trapped inside

(Image credit: Getty Images)

published 26 August 2025

Some might be surprised to learn their Social Security benefits are taxable in retirement.

After all, you pay Social Security taxes on your wages while you work, and then when you retire, you might expect those payments to come tax-free.

But up to 85% of Social Security payments may be taxed as you receive them. And even if you don’t think you’ll be subject to that much tax, your year-end bill might still surprise you. Factors like high income and unplanned withholding can result in a substantial tax bill to the IRS.

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Here are three key ways your Social Security benefit taxes could be higher than expected when you retire.

Your Social Security benefits tax is calculated using an IRS figure called “combined income.”

“Combined income” is your adjusted gross income (AGI) added to nontaxable interest, plus half of your Social Security benefits from the year.
Certain deductions and exclusions can indirectly lower your combined income, like the standard deduction, the bonus standard deduction, or the state and local tax (SALT) deduction.

The higher your AGI and nontaxable interest is, the more you might pay in taxes on Social Security benefits.

There is no federal tax on Social Security benefits for married filing joint couples with less than $32,000 in combined income (single filers with less than $25,000).
Up to 50% of Social Security benefits may be subject to federal tax for married couples filing jointly with $32,000 to $44,000 in combined income ($25,000 to $34,000 for single filers).
Up to 85% of Social Security benefits may be taxed if your combined income is above $44,000 for married filing jointly couples or single filers making above $34,000.

So, what are some ways that combined income might grow unexpectedly and lead to a big tax bill? Say you’re downsizing in retirement with tax benefits. Even if you qualify for a capital gains exclusion, selling your home could impact how much of your Social Security benefits are taxed.

Or, your combined income could rise when the Social Security cost-of-living (COLA) amount increases. The Social Security Administration (SSA) uses inflation-adjusted COLA to determine how much your Social Security benefits should change. A rate increase can cause wealthier taxpayers to pay more tax.

Surprise windfalls are just one reason you could get a higher tax bill on your Social Security benefits in retirement. Utilizing strategies to reduce taxes on Social Security benefits may be one way to avoid the unexpected.

Contrary to myth, there isn’t an age when you stop paying federal taxes on Social Security. Nor does your age directly affect how your Social Security benefits will be taxed.

But the age at which you claim Social Security might affect your overall tax situation. Here’s an explanation:

You can claim Social Security between the ages of 62 and 70.
If you claim at 62, your monthly payments will be permanently reduced over your lifetime.
If you wait to claim your benefits until your full retirement age (FRA), you could get your full monthly benefit amount (the current FRA is 67 for those born in 1960 or later).
However, many people have traditional individual retirement accounts (IRAs), including 401(k)s, 403(b)s, etc..
Traditional IRAs have a separate rule called “required minimum distribution” (RMD) age, which requires you to withdraw a specific taxable amount each year, or you’ll be penalized (the current RMD age is between 72 and 75, depending on when you were born).
The problem is, by withdrawing RMDs, your combined income goes up, and that can trigger up to 85% tax on your Social Security benefits.

a social security card torn in half with the U.S. Capitol Building between the two halves — SS benefits were not subject to federal income tax until the passage of the 1983 Social Security Amendments.

How can you avoid the RMD vs. Social Security benefit tax trap? One way is to start strategically withdrawing from traditional retirement accounts before you reach the RMD age (withdrawals before age 59 ½, however, will face a penalty).

By making gradual withdrawals from traditional IRAs, you spread out your “RMD liability” over several years, instead of sharply raising your combined income when it’s time to claim Social Security benefits. However, you’ll be cutting short any tax-deferred growth on those investments by withdrawing earlier, and your taxable income will still increase for the year of withdrawal.

If you’re already at RMD age, you may lower your combined income by making a qualified charitable distribution (QCD). QCDs may lower your AGI and potentially reduce Medicare premiums. But taking a QCD also decreases the amount of income you receive.

Not only is tax withholding a good idea, but it’s required if you owe taxes on your Social Security benefits. The IRS requires you to pay federal taxes on your payments through either monthly withholding or quarterly estimates.

The federal withholding rate options are 7%, 10%, 12%, or 22% of your benefits.
However, you can’t withhold state taxes on Social Security benefits.
Alternatively, you can make quarterly estimated payments for federal and state taxes.

How can inadequate tax withholding on Social Security benefits increase your end-of-year bill? While you were working, you might have set up your tax withholding once through your employer and called it quits. But by carefully reviewing your tax withholding every year, you can account for anticipated capital gains, interest, and dividend income that you know you’ll receive one year and maybe not the next.

Form W-4V (Voluntary Withholding Request) may be used to calculate your Social Security benefits withholding. Unlike Form W-4, which you might’ve used while working, the W-4V is submitted directly to the SSA.

Quarterly estimated payments should also be enough to pay your tax and avoid an IRS underpayment penalty when filing your annual income return (if you opt for that method instead).

By planning adequately for withholding tax from your Social Security benefits, you may prepay a portion of your “surprise” tax bill before the end of the year.

Overall, every retiree’s financial situation is unique. Factors impacting taxes on your Social Security benefits may include:

The size of your retirement nest egg.
Your income streams.
Your financial goals.

Additionally, state taxes on Social Security benefits can also affect your savings. So don’t forget to keep an eye on your state’s Department of Revenue website for changes in retirement income tax rules, which may also help avoid any potential surprise tax bills on your Social Security benefits in retirement.

Also see our report: States That Tax Social Security Benefits in 2025.

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Kate is a CPA with experience in audit and technology. As a Tax Writer at Kiplinger, Kate believes that tax and finance news should meet people where they are today, across cultural, educational, and disciplinary backgrounds.