Taxation of Social Security Benefits

You may have to pay taxes on your Social Security benefits.

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You've finally retired. You've reached the age when you can begin collecting Social Security. Life is easy ... or is it? When tax time rolls around, an obvious question arises—do you have to pay income tax on Social Security benefits? 

Unfortunately, the answer isn't entirely cut and dry. Your tax liability depends on other details about your situation. Social Security benefits might be either non-taxable or partially taxable.

Keep reading to learn the factors that determine whether or not you'll owe taxes on your Social Security benefits.

If Social Security Is Your Only Income

You almost certainly won't have to pay 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.

You might not even have to file a tax return in this situation, but check with a tax professional before you forgo filing altogether.

If You Have Other Income 

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.

You can use the Social Security Benefits Worksheet in the Instructions for Form 1040 to calculate your taxable amount based on your own personal circumstances. 

To figure out your tax liability, you must first calculate your "combined income," 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.

Filing status Base amount Additional amount
Single $25,000 $34,000
Head of Household $25,000 $34,000
Qualifying Widow(er) $25,000 $34,000
Married Filing Jointly $32,000 $44,000
Married Filing Separately and Lived Apart From Spouse Entire Year $25,000  
Married Filing Separately and Lived With Spouse for Any Time During Year $0  

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.

Consider consulting with a tax professional to more precisely pin down your potential liability if you have multiple sources of other income. You might want to 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 (assuming you file as a single), 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.

Crossing the base amount threshold doesn't mean you'll be taxed at a rate of 50%. It means that you'll have to report and pay income tax on 50% of your Social Security income. Your tax rate will be determined by your income tax bracket.

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 2020. 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, to let the Social Security Administration know exactly how much tax you would like to have withheld.

State Taxes Are Different

Just over half of states, in addition to Washington D.C., either do not collect income tax or do not factor Social Security income into those tax considerations. The remaining 24 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 they offer breaks based on your age and income level.

Don't neglect to plan for state taxes. Consider touching base with a tax professional to determine what, if any, tax breaks you might qualify for locally.

Article Sources

  1. Internal Revenue Service. "Social Security Income." Accessed Oct. 22, 2020.

  2. Social Security Administration. "Income Taxes and Your Social Security Benefit." Accessed Oct. 22, 2020.

  3. Social Security Administration. "Withholding Income Tax From Your Social Security Benefits." Accessed Oct. 22, 2020.

  4. Tax Foundation. "Does Your State Tax Social Security Benefits?" Accessed Oct. 22, 2020.