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In a nutshell
Social Security is a key component of retirement finances for many retirees. But do you have to pay tax on it? Unfortunately, the answer is: it depends.
- Social Security taxability at the federal level is based on your income.
- Most states do not tax Social Security benefits.
- Social Security income and disability benefits can both be subject to income taxes.
Is my Social Security taxable?
The taxability of your Social Security benefits is a function of your overall income. No matter how high one’s income is, the maximum amount of your benefit that will be subject to taxes is 85% of the benefit.
How much of Social Security is taxable?
There is a calculation to determine how much of your Social Security benefit will be taxable at the federal level. Whether or not your Social Security benefits are taxable is a function of your “combined” or “provisional” income (in the IRS jargon).
Your combined income is your adjusted gross income, plus any non-taxable interest income earned, plus ½ of your Social Security benefits.
Single filers
- If your combined income is between $25,000 and $34,000 up to 50% of your benefits may be taxed.
- If your combined income is greater than $34,000 up to 85% of your benefits may be taxed.
Married filing jointly
- If your combined income is between $32,000 and $44,000 up to 50% of your benefits may be taxed.
- If your combined income is greater than $44,000 up to 85% of your benefits may be taxed.
Note the words “up to” are important here. For those who are married and filing jointly just because you hit the $44,000 level doesn’t mean that a full 85% of your benefits will be subject to taxes.
For those who are married but file separately it is likely that their Social Security benefits will be taxed at some level.
State taxes on Social Security
Currently only 12 states tax Social Security benefits. Be sure to check the rules in your state of residence for the taxation not only of Social Security benefits, but also other types of retirement benefits and retirement income.
Is Social Security disability taxable?
Social Security Disability Insurance (SSDI) benefits are taxable. The tax you pay is based on your filing status and your level of combined income, in the same way as the calculation for Social Security retirement benefits. These taxation levels apply to all benefits paid from the Social Security Trust Fund, so they include Social Security disability benefits as well as survivor’s benefits and retirement benefits.
Supplemental Security Income (SSI) benefits are not taxable since they are not paid from the Social Security Trust Fund. While these benefits are administered by the Social Security Administration, the actual benefits are paid from general U.S. Treasury funds. SSI benefits help support those with low incomes and limited financial resources who are at least age 65, blind or disabled. These benefits are not subject to income taxes.
How to determine if your Social Security is taxable
If you receive Social Security retirement benefits, survivor’s benefits or disability benefits, you will need to calculate your combined income to determine whether your Social Security benefits are taxable.
To determine your combined income:
- Determine your adjusted gross income. This is a separate line on your tax return.
- Add back 50% of any tax-free interest income you will earn. This is often in the form of interest on bonds that are not subject to federal taxation. Many municipal bonds or municipal bond funds fit this criteria.
- Add in 50% of your Social Security benefits.
- Take this total and compare it to the rules outlined above for your filing status.
How to avoid taxes on benefits
The main way to avoid taxes on your Social Security benefits is to keep your combined income at levels below the thresholds where taxes on benefits are triggered.
Roth accounts
Roth accounts can help reduce taxable income in the years when you will be taking your Social Security benefits. Whether contributing to Roth accounts like a Roth IRA or a Roth 401(k) or doing Roth conversions in the years prior to taking Social Security benefits, money in a Roth account is not taxed when withdrawn as long as certain requirements are met.
Withdrawals early in retirement
For those who are drawing retirement income from their accounts in the early “gap” years of retirement prior to claiming Social Security benefits and the commencement of required minimum distributions (RMDs), taking money from traditional retirement accounts like IRAs and 401(k)s can reduce the level of future RMDs.
If you’re considering this approach, be careful to take other factors into consideration beyond reducing potential taxes on future Social Security benefits.
Qualified charitable distributions (QCDs)
Qualified charitable distributions (QCDs) allow those who are 70½ or older to take up to $105,000 from a traditional IRA tax-free as long as the distribution is directed to a qualified charitable organization. This amount is indexed for inflation in 2024 and beyond.
If you don’t need some or all of the money in your IRA as income in retirement, the QCD can be a tax-efficient way to contribute to the charities of your choice. While there is no charitable deduction on your tax return, the money comes out of the IRA tax-free.
In the years where you must take an RMD, you can use a QCD to meet this requirement for some or all of the RMD amount. This portion of your RMD will not be taxable. Amounts over and above the RMD amount taken as a QCD will reduce the amount of future RMDs and the taxes on those RMDs. The same goes for QCDs taken in the years leading up to your RMD commencement age.
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Find the right financial advisor with WiserAdvisor
Purchase a QLAC
A QLAC (qualified longevity annuity contract) is a deferred annuity that can be purchased inside of a 401(k), IRA or other type of retirement plan account. Up to $200,000 can be used to purchase the annuity. This money is exempt from RMDs until the QLAC is annuitized or other types of withdrawals are made. This can be deferred out to age 85. This money will not be subject to RMDs and will serve to lower these distributions and overall taxable income.
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Social Security benefits are an important source of retirement income for many retirees. These benefits are funded by Social Security taxes withheld from our paychecks during our working years.
Even though you have paid this Social Security tax throughout your working years, your Social Security benefits will be subject to taxes if your overall combined income exceeds certain thresholds. The thresholds are based on your filing status.
It certainly can be worthwhile to reduce your income during retirement to try to avoid these taxes to the greatest extent possible, but only if this is feasible in the context of your overall retirement financial situation.
Frequently asked questions (FAQs)
At what age is Social Security no longer taxable?
Age is not a factor in whether or not your Social Security benefits are taxable. The tax you pay only depends on your income and filing status.
Do I have to pay state taxes on Social Security?
Only certain states tax Social Security benefits at the state level. They are:
- Colorado.
- Connecticut.
- Kansas.
- Minnesota.
- Missouri.
- Montana.
- Nebraska.
- New Mexico.
- Rhode Island.
- Utah.
- Vermont.
- West Virginia.
The remaining states do not tax Social Security benefits.
How much can a retired person earn without paying taxes?
Being retired does not impact the amount of taxes due on a person’s income. Your income will be taxed based on the income tax rates that pertain to your income and filing status. The same criteria apply to determining whether or not your Social Security benefits are taxed.
Do Social Security benefits count as income?
Yes. Social Security benefits do count as taxable income if they exceed the income thresholds outlined above.
AP Buyline’s content is created independently of The Associated Press newsroom. Our evaluations and opinions are not influenced by our advertising relationships, but we might earn commissions from our partners’ links in this content. Learn more about our policies and terms here.