Taxation of Social Security Benefits

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

Social Security cards and account statements against a black background
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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? Tax time rolls around, and the obvious question arises: Do you have to pay income tax on Social Security benefits? 

It depends. They might be either non-taxable or partially taxable, depending on how much extra income you have from other sources.

If Social Security Is Your Only Income

Your Social Security income probably isn't taxable if you never got around to investing in that 401(k), if you're not collecting money by renting out a property, and 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 won't have to pay income tax on your Social Security benefits in this case unless those benefits are really significant and they surpass certain thresholds, which isn't likely.

You might not even have to file a tax return in this situation, but check with a tax professional to be sure.

If You Have Other Income 

A portion of your benefits might 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.  

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 interest, plus half your Social Security benefits.

These base amounts are used in figuring the taxable portion of your Social Security benefits.

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  

How the Base Amount Works

Let's 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 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 provisional income is therefore $31,000: your investment income of $15,000, plus your $7,000 in wages, plus $9,000 or 50% of your Social Security benefits. This is $6,000 more than $25,000 threshold if your filing status is single, qualifying widow(er), or head of household. You'll therefore have to pay taxes on some portion of your Social Security benefits.

Possible Adjustments

The flipside to this example is that your Social Security benefits would have been tax free if your retirement investments kicked off only $7,500. This would drop you under the $25,000 provisional income threshold, even if you kept that part-time job. Your investment income of $7,500 plus $7,000 in wages plus half your Social Security benefits or $9,000 works out to $23,500.

The same would apply if you gave up the job but your investments still provided $15,000 a year in income. Your benefits would be tax free if your total income came out to less than $25,000.

You can potentially make some adjustments to your income if you plan in advance. 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 pin down your potential liability more exactly 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.

About That "Additional" Amount 

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

That's not a 50% tax rate. It means that you'll have to report and pay income tax on 50% of your Social Security income.  

You would have to pay income tax on 85% of your Social Security benefits if your total provisional income was more than $34,000—in this example, $15,300 or 85% of your $18,000 in benefits.

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. The income thresholds increase accordingly to $32,000 in provisional income and $44,000 for an additional amount.

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 to 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 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 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%, 10%, 12%, or 22% as of 2020. You're limited to these exact percentages, however—you can't opt for another percentage or a flat dollar amount.

File Form W-4V, the Social Security Withholding Tax Form, 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, some states will also tax your Social Security benefits:

  • Colorado
  • Connecticut
  • Kansas
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Mexico
  • North Dakota
  • Rhode Island
  • Utah
  • Vermont
  • West Virginia

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 as well if you live in any of these states. Consider touching base with a tax professional to determine what, if any, tax breaks you might qualify for there.

Article Sources

  1. Social Security Administration. "Income Taxes and Your Social Security Benefit." Accessed Aug. 6, 2020.

  2. IRS. "2019 Publication 915: Social Security and Equivalent Railroad Retirement Benefits," Pages 3, 6. Accessed Aug. 6, 2020.

  3. Social Security Administration. "Withholding Income Tax From Your Social Security Benefits." Accessed Aug. 6, 2020.

  4. Tax Foundation. "Does Your State Tax Social Security Benefits?" Accessed Aug. 6, 2020.