Is Social Security Taxable?

Yes, for most Americans. But here’s how to reduce the taxes that you pay on benefits

Reviewed by Marguerita ChengFact checked by Kirsten Rohrs SchmittReviewed by Marguerita ChengFact checked by Kirsten Rohrs Schmitt

Social Security benefits are taxable for many Americans. A majority of those who receive Social Security benefits pay income tax on up to half or even 85% of that money because their combined income from Social Security and other sources pushes them above the thresholds for taxes to kick in.

But three strategies can help you limit the amount of tax you pay on Social Security benefits: place some retirement income in a Roth individual retirement account (IRA), withdraw taxable income before retiring, or purchase an annuity.

Key Takeaways

• Up to 50% of Social Security income is taxable for single individuals with a total gross income of at least $25,000 and for couples filing jointly with a combined gross income of at least $32,000 including Social Security.
• Up to 85% of Social Security income is taxable for individuals with a total gross income of at least $34,000 and for couples filing jointly with a combined gross income of at least $44,000 including Social Security.
• Retirees with little income other than Social Security generally won’t be taxed on their benefits.
• Your focus should be on paying less overall taxes on your combined income.
• A tax-advantaged retirement account such as a Roth IRA can help.

How Much of Your Social Security Income Is Taxable?

Social Security payments have been subject to taxation above certain income limits since 1983.

But no taxpayer has all their Social Security benefits taxed regardless of their income. The top level is 85% of the total benefit.

Here’s how the Internal Revenue Service (IRS) calculates how much is taxable:

• The calculation begins with your adjusted gross income (AGI) from Social Security and all other sources. That may include wages, self-employment earnings, interest, dividends, required minimum distributions (RMDs) from qualified retirement accounts, and other taxable income.
• Tax-exempt interest is then added. It’s not taxed, but it goes into the calculation.
• At least half your Social Security benefits will be considered taxable income if that total exceeds the minimum taxable levels. You must then take the standard or itemize deductions to arrive at your net income.

The amount you owe depends on precisely where that number lands in the federal income tax tables.

Combined Income = Adjusted Gross Income + Nontaxable Interest + Half of Your Social Security Benefits

Important

The key to reducing taxes on your Social Security benefits is to reduce the amount of taxable income you have when you retire but not to reduce your total income.

The average monthly Social Security retirement benefit is $1,907 as of January 2024. That works out to $22,884 a year.

Individual Tax Rates

Benefits will be subject to taxation if you file a federal tax return as an individual and your combined gross income from all sources is as follows:

• From $25,000 to $34,000: You may have to pay income tax on up to 50% of your benefits.
• More than $34,000: Up to 85% of your benefits may be taxable.

The IRS has a worksheet that can be used to calculate your total income taxes due if you receive Social Security benefits. You’ll find that your taxable income has increased by up to 50% of the amount you received from Social Security if your gross income exceeds $25,000 for an individual or $32,000 for a couple. The taxed percentage rises to 85% of your Social Security payment if your combined income exceeds $34,000 for an individual or $44,000 for a couple.

Say you’re an individual taxpayer who received about $18,000 from the Social Security Administration (SSA) last year. You also had $20,000 in other income. Add the two together and you have a gross income of about $38,000. Your combined income is computed as only $29,000, however: other income plus half of your Social Security benefits. That’s within the $25,000 to $34,000 range for a tax of 50% of your benefits.

Half the difference between that income and the $25,000 threshold is your taxable amount: $29,000 – $25,000 = $4,000; $4,000/2 = $2,000. The calculation can become more complicated for taxpayers with different forms of income.

Married Tax Rates

Your benefits will be taxable if you and your spouse have a combined income as follows and you file a joint return:

• From $32,000 to $44,000: You may have to pay income tax on up to 50% of your benefits.
• More than $44,000: Up to 85% of your benefits may be taxable.

Say you’re a semi-retired couple filing jointly and have a combined Social Security benefit of $26,000. You also had $30,000 in other income. Add the two together and you have a combined gross income of $56,000.

Your combined income for Social Security is $43,000: your other income plus half your Social Security benefits. This combined income falls in the $32,000 to $44,000 range, so half the difference between the income and the threshold is computed at 50% to get your amount taxable: $43,000 – $32,000 = $11,000; $11,000/2 = $5,500.

Social Security Benefits Tax Tool

These straightforward examples may not apply to you. The IRS’s Interactive Tax Assistant (ITA) will lead you through the possible complications and calculate what part of your income is taxable. IRS Notice 703 describes the tax rules for benefits.

Are Spousal, Survivor, Disability, and SSI Benefits Taxable?

These programs follow the same general rules as the Social Security program for retirees except for Supplemental Security Income (SSI).

Spousal Benefits

The rules are the same as for all other Social Security recipients if you don’t have Social Security benefits but collect spousal Social Security benefits based on your spouse’s benefits. You’ll owe taxes on up to 50% of the benefit amount if your income is above $25,000, and the percentage rises to 85% if your income is above $34,000.

Survivor Benefits

Survivor benefits paid to minor children are rarely taxed because few children have other income that reaches the taxable ranges. Parents or guardians who receive the benefits on behalf of children don’t have to report these benefits as part of their income.

Disability Benefits

Social Security disability benefits follow the same rules for taxation as the Social Security retiree program. Benefits are taxable if the recipient’s gross income is above a certain level. The threshold is $25,000 for an individual and $32,000 for a couple filing jointly as of 2024.

SSI Benefits

SSI is not Social Security. It’s a needs-based program for people who are blind, disabled, or age 65 and older. SSI benefits are not taxable.

Paying Taxes on Social Security

You should receive Form SSA-1099, the Social Security Benefit Statement, each January detailing your benefits during the previous tax year. You can use it to determine whether you owe federal income tax on your benefits. The information is available online if you enroll on the Social Security website.

Note

You can make quarterly estimated tax payments to the IRS or have federal taxes withheld from your payouts before you receive them if you owe taxes on your Social Security benefits.

State Taxes on Social Security

Ten states tax Social Security benefits in some cases. Check with your state tax agency if you live in Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, or West Virginia. As with the federal tax, how these agencies tax Social Security varies by income and other criteria.

3 Ways to Avoid Taxes on Benefits

The simplest way to keep your Social Security benefits free from income tax is to keep your total combined income below the thresholds to pay tax. This may not be a realistic goal for everyone, however. You have three other options to limit the taxes that you owe.

• Place retirement income in Roth accounts
• Withdraw taxable income before retiring
• Purchase an annuity

Place Some Retirement Income in Roth Accounts

Contributions to a Roth IRA or Roth 401(k) are made with after-tax dollars, so they’re not subject to taxation when the funds are withdrawn. The distributions from your Roth IRA are tax free provided that they’re taken after you reach age 59½ and have had the account for five or more years. The Roth payout won’t affect your taxable income calculation and won’t increase the tax you owe on your Social Security benefits as a result.

Distributions taken from a traditional IRA or traditional 401(k) plan are taxable, however.

The Roth advantage makes it wise to consider a mix of regular and Roth retirement accounts well before retirement age. The blend will give you greater flexibility to manage the withdrawals from each account and minimize the taxes you’ll owe on your Social Security benefits. A similar effect can be achieved by managing your withdrawals from conventional savings, money market accounts, or tax-sheltered accounts.

Withdraw Taxable Income Before Retirement

Another way to minimize your taxable income when you’re drawing Social Security is to maximize or at least increase your taxable income in the years before you begin to receive benefits.

You could be in your peak earning years between age 59½ and your retirement age. Take a chunk of money out of your retirement account and pay the taxes on it. Then you can use it later without pushing up your taxable income.

You could take distributions and withdraw funds a little early from your tax-sheltered retirement accounts such as IRAs and 401(k)s. You can take penalty-free distributions after age 59½. You’ll avoid being dinged for making these withdrawals too early, but you must still pay income tax on the amount you withdraw from traditional rather than Roth accounts.

The withdrawals are taxable unless they’re from a Roth account, so they must be planned carefully with an eye on other taxes you’ll pay that year. The goal is to pay less tax by making more withdrawals during this pre–Social Security period than you would after you begin to draw benefits. This requires considering the total tax bite from withdrawals, Social Security benefits, and other sources.

Be mindful, too, that you’re required to take RMDs from your 401(k), traditional IRA, and certain other retirement accounts. You must begin taking distributions beginning in the year you turn 73 if you reach age 72 after Dec. 31, 2022.

This strategy has another benefit: You might be able to delay applying for Social Security benefits by using these distributions to boost your income when you’re retired or nearing retirement, and this will increase the size of your payments.

Purchase an Annuity

A qualified longevity annuity contract (QLAC) is a deferred annuity that’s funded with an investment from a qualified retirement plan or an IRA. QLACs provide monthly payments for life and are shielded from stock market downturns. They’re exempt from the RMD rules until payouts begin after the specified annuity starting date as long as the annuity complies with IRS requirements.

Note

Qualified longevity annuity contract (QLAC) income can be deferred until age 85. A spouse or someone else can be a joint annuitant, so both named individuals are covered regardless of how long they live.

QLACs can help minimize the tax bite taken from your Social Security benefits by limiting distributions and thus your taxable income during retirement. There was a rule that an individual could spend 25% or $135,000 (whichever is less) of a retirement savings account or an IRA to buy a QLAC with a single premium, but that rule was repealed as of March 2024.

A QLAC shouldn’t be bought only to minimize taxes on Social Security benefits. Retirement annuities have advantages and disadvantages that should be weighed carefully, preferably with help from a retirement advisor.

How Do I Determine If My Social Security Is Taxable?

Add up your gross income for the year, including your Social Security benefits, to determine if your Social Security is taxable. You likely won’t owe taxes if you have little or no income besides your Social Security benefits, but up to 50% of your Social Security benefits may be taxable if you’re an individual filer with at least $25,000 in gross income, including your Social Security for the year.

The minimum is $32,000 for a married couple who files jointly. Up to 85% may be taxable if you’re single and your gross income is $34,000 or more or $44,000 if you’re married and filing jointly.

What Percentage of Social Security Is Taxable?

Your Social Security is not taxable if your total income for the year is less than $25,000 and you file as a single, individual taxpayer. Half or 50% is taxable if your income is in the $25,000 to $34,000 range. Up to 85% of your benefits may be taxable if your total income is higher. You’ll owe taxes on 50% of your benefits if your joint income is in the $32,000 to $44,000 range and you and your spouse file jointly. Up to 85% is taxable if your income exceeds that.

Do I Have to Pay State Taxes on Social Security?

Forty states don’t impose taxes on Social Security benefits. The other 10 states tax some recipients under certain circumstances.

Does Social Security Count as Income?

Yes, your Social Security benefits count as income, but you can minimize the amount you owe in taxes each year by making wise moves before and after you retire. Consider investing some of your retirement savings in a Roth account to shield your withdrawals from income tax. Take out some retirement money after you’ve reached age 59½ but before you retire to pay for expected taxes on your Social Security before you begin receiving benefit payments.

You might also talk to a financial planner about a retirement annuity.

At What Age Is Social Security No Longer Taxed?

Social Security is taxable based on your total income, not age. The taxable amount varies from zero to 85%, depending on your total income.

The Bottom Line

Most advice on Social Security benefits focuses on when you should start taking benefits. The short answer is to wait until age 70 if you can, to maximize the amount of benefits you receive.

It’s wise to set plans in place well in advance of retirement to prevent your Social Security benefits from taking a big tax bite out of your overall retirement income. You can minimize your overall tax burden during your retirement years with the help of an advisor.

Read the original article on Investopedia.