Taxation of Social Security Benefits

Do you have to pay taxes on your Social Security benefits? Maybe

Your social security account
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You've finally retired. You've reached the age when you can begin collecting Social Security. Life is easy ... until tax time rolls around. Then the obvious question arises: Do you have to pay income tax on those benefits? 

It depends. Your benefits might be either non-taxable or partially taxable, depending on how much extra income you have from other sources. Here's how it breaks down. 

If Social Security Is Your Only Source of Income

If you never got around to investing in that 401(k), if you're not collecting money by renting out your home while you move in with your son or daughter, and if you've given up working entirely, your Social Security income is not taxable.

These are just examples – the point is that you have no other form income at all from any source. You might not even have to file a tax return in this situation. 

If You Do Have Other Income 

If you have other sources of income in addition to your Social Security benefits, a portion of your benefits might become taxable. You can use the Social Security Benefits Worksheet in the Instructions for Form 1040 to calculate your taxable amount, but here's how it basically works. 

First, calculate your provisional income, then compare it to the base amounts in the chart below. Your provisional income is your total income from all other sources, including tax-exempt income, plus half your Social Security benefits.

These base amounts are used in figuring the taxable portion of your Social Security benefits for tax years 2017 and 2018.

Filing statusBase amountAdditional amount
Head of Household$25,000$34,000
Qualifying Widow(er)$25,000$34,000
Married Filing Jointly$32,000$44,000
Married Filing Separately$0 

How the Base Amount Works

Let's put this in plain English and give an example. We'll say that you collect $15,000 a year in investment income. You continue to work one day a week just to get out of the house and yes, to help make ends meet, and you earned $7,000 last year doing so. You collect $18,000 a year in Social Security retirement benefits.

Half of that comes out to $9,000.

Your provisional income is therefore $31,000: your investment income plus your wages plus $9,000 or 50 percent of your Social Security benefits. If your filing status is Single, Head of Household, or Qualifying Widow(er), your provisional income is $6,000 more than the base amount of $25,000 so you'll have to pay taxes on some portion of your Social Security benefits. If the total had come out to less than the base amount of $25,000, your benefits would have been tax-free. 

Now About That Additional Amount 

Then there's that other column, the "additional amount." Your total income of $31,000 is more than the base amount for your filing status, but it's less than this additional amount of $34,000, so you would have to pay taxes on 50 percent of your Social Security benefits.

That's not a 50 percent tax rate. It means that you'll have to report and pay income tax on $9,000 of your $18,000 in Social Security income.  

If your total provisional income was more than $34,000 in 2017 or 2018, you would have to pay income tax on 85 percent of your Social Security benefits—in this example, $15,300 or 85 percent of $18,000.

Rules for Married Couples 

The same base amount and additional amount rules apply if you're married and filing a joint tax return, but you would calculate based on both your incomes and both your Social Security benefits.

Married couples who file separate tax returns have two options for computing the taxable portion of their Social Security benefits. If you lived in the same household together at any time during the tax year, this reduces your base amount of zero. You'll pay tax on some portion of your Social Security benefits. 

Married couples who lived apart from each other throughout the entire year can use a base amount of $25,000 and the additional income amount of $34,000 for computing the taxable portion of their benefits, just as though they were single. 

In any case, whether you're married or single, the taxable portion of your Social Security benefits cannot exceed 85 percent 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 have reason to think you'll end up paying tax on some portion of them.

Federal income tax can be withheld at a rate of 7 percent, 10 percent, 15 percent, or 25 percent. File Form W-4V (PDF) to let the Social Security Administration know how much tax you would like to have withheld.

State Taxes Are Different

Although a majority of states exclude Social Security income from taxation, five states will also tax up to 85 percent of your benefits as of January 2018: Rhode Island, Vermont, North Dakota, West Virginia, and Minnesota. Eight other states—Utah, Nebraska, New Mexico, Montana, Missouri, Kansas, Connecticut and Colorado—also tax Social Security benefits to some extent but they offer some breaks based on your age and income level. If you live in any of these tax jurisdictions, don't neglect to plan for state taxes as well. 

These are the basic rules. If you have multiple sources of other income, consider consulting with a tax professional to pin down your potential liability more exactly.