California does not tax Social Security benefits

California is one of the states that does not tax Social Security income at the state level. If you receive Social Security retirement, survivor, or disability benefits, you will not owe California state income tax on those payments. This applies whether you live in California year-round or are a part-time resident.

However, your Social Security benefits may still be taxable at the federal level, depending on your total income. The federal government uses a formula based on your "combined income" — which includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits — to determine whether any portion of your benefits is subject to federal income tax. California's exemption only covers state taxes, not federal ones.

Key Takeaways

  • California does not tax Social Security retirement, survivor, or disability benefits at the state level, regardless of how much you receive.
  • Your Social Security benefits may still be subject to federal income tax if your combined income exceeds certain thresholds set by the IRS.
  • If you work while receiving Social Security before full retirement age, your benefits may be reduced, but California will not tax the reduced amount.
  • You do not need to file a California state tax return solely because of Social Security income, though you may need to file a federal return.

How federal taxation of Social Security works

Even though California does not tax your benefits, the federal government may. The IRS taxes Social Security based on your combined income, which is calculated as your adjusted gross income plus nontaxable interest plus half of your Social Security benefits.

If you are single and your combined income is between $25,000 and $34,000, you may owe federal tax on up to 50 percent of your benefits. If your combined income exceeds $34,000, you may owe federal tax on up to 85 percent of your benefits. For married couples filing jointly, these thresholds are $32,000 and $44,000. If your combined income is below these thresholds, your Social Security is not taxed federally.

These income thresholds have not changed since 1984, even though the cost of living has risen significantly. This means more people are subject to federal taxation of their benefits than was originally intended.

Other income that affects your tax situation

Your Social Security benefits themselves do not count as income for California state tax purposes, but other income you receive does. If you have wages from work, interest from savings, dividends, rental income, or distributions from retirement accounts, California will tax that income at the state level.

When calculating whether your federal Social Security benefits are taxed, the IRS includes all of this other income in your combined income figure. This means that even if you receive a modest Social Security payment, a larger amount of other income could push you into the range where your benefits become federally taxable.

For example, if you receive $20,000 in Social Security and $15,000 in interest and dividends, your combined income for federal purposes is $27,500 (15,000 + 12,500, which is half of 20,000). As a single filer, this puts you in the range where some of your benefits may be federally taxable, even though California will not tax any of it.

Working while receiving Social Security

If you are younger than full retirement age and you work, Social Security will reduce your benefits by $1 for every $2 you earn above an annual limit. In the year you reach full retirement age, the reduction is $1 for every $3 earned above a different limit, but only for earnings before the month you reach full retirement age. Once you reach full retirement age, you can earn any amount without a reduction.

California does not tax the reduced benefit amount you receive. However, the wages you earn from work are subject to California state income tax. The combination of your reduced Social Security benefit and your wages may also push your combined income high enough that some of your benefits become federally taxable.

Filing requirements in California

You do not need to file a California state income tax return if your only income is Social Security benefits. However, you may still need to file a federal return, depending on your total income and filing status.

If you have other income besides Social Security — such as wages, self-employment income, interest, or dividends — you may need to file both a California state return and a federal return. The threshold for filing a California return depends on your age and filing status. You can find the current thresholds on the California Franchise Tax Board website.

Even if you are not required to file, you may want to file anyway if you had taxes withheld from your paychecks or if you are due a refund. Filing a return is the only way to recover overpaid taxes.

Withholding taxes from your Social Security check

You can choose to have federal income tax withheld from your Social Security benefits. This is optional, but it may help you avoid owing a large amount when you file your federal return.

To set up withholding, you complete Form W-4V and submit it to Social Security. You can choose to have 7 percent, 10 percent, 12 percent, or 22 percent of your benefit withheld, or you can specify a dollar amount. Social Security will not withhold California state income tax because the state does not tax benefits.

If you have other income and expect to owe federal tax on your Social Security benefits, setting up withholding can spread that tax burden across the year rather than requiring a large payment when you file your return.

Frequently Asked Questions

Do I have to pay California state income tax on my Social Security?

No. California does not tax Social Security benefits at the state level. You will not owe California income tax on any amount of Social Security you receive, regardless of how much it is or what other income you have.

Will I owe federal tax on my Social Security?

It depends on your combined income. If you are single and your combined income is below $25,000, your benefits are not federally taxed. Between $25,000 and $34,000, up to 50 percent may be taxed. Above $34,000, up to 85 percent may be taxed. Married couples filing jointly have thresholds of $32,000 and $44,000.

What counts as income when the IRS calculates whether my benefits are taxed?

Combined income includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits. Wages, self-employment income, interest, dividends, rental income, and distributions from retirement accounts all count toward this total.

Can I have taxes withheld from my Social Security check?

Yes. You can complete Form W-4V and submit it to Social Security to have federal tax withheld at 7, 10, 12, or 22 percent of your benefit, or a specific dollar amount. California will not withhold state tax because the state does not tax Social Security.