Whether your Social Security is taxed depends on your other income

You may owe federal income tax on part of your Social Security benefits if your total income exceeds a certain threshold. The IRS calls this "combined income," and it includes your wages, interest, dividends, and half of your Social Security benefits added together. If you stay below the threshold for your filing status, you pay no tax on your benefits. If you go over it, you may owe tax on up to 85 percent of what you received.

The thresholds have not changed since 1984, which means more people cross them each year as wages and benefits rise. A married couple filing jointly with combined income over $32,000 may owe tax. A single filer over $25,000 may owe tax. A married person filing separately almost always owes tax if they received any benefits. These are the first thresholds; a second, higher threshold determines whether you owe tax on the maximum 85 percent.

State taxes are separate. Some states do not tax Social Security at all. Others tax it the same way the federal government does. A few tax it only if your income is very high. You need to check your state's rules, because federal taxation does not tell you what your state will do.

Key Takeaways

  • Combined income — your wages, interest, dividends, and half your Social Security benefits — determines whether any of your benefits are taxable.
  • The federal thresholds are $25,000 for single filers and $32,000 for married couples filing jointly; married people filing separately face taxation on almost all benefits.
  • You may owe tax on 50 percent of your benefits if you are between the first and second threshold, or up to 85 percent if you are above the second threshold.
  • State taxation of Social Security varies widely; some states do not tax it at all, while others follow federal rules or have their own thresholds.

How the IRS calculates combined income

Combined income is not the same as adjusted gross income (AGI). Start with your AGI from your tax return, then add back certain deductions and half of your Social Security benefits. The result is what the IRS uses to determine taxation.

The items you add back are: tax-exempt interest (usually from municipal bonds), foreign earned income exclusion, and foreign housing exclusion or deduction. Most people do not have these, so for them, combined income is roughly AGI plus half of Social Security. If you have a pension and Social Security but no other income, combined income is the pension plus half the benefits. If you have wages and Social Security, it is the wages plus half the benefits.

The reason the IRS includes only half your benefits in the combined income calculation is historical — it reflects an assumption that half your benefits represent a return of taxes you paid in. The other half is treated as new income. This is why the threshold amounts seem oddly specific: they were set in 1984 dollars and have never been adjusted for inflation.

The two-tier tax structure: 50 percent and 85 percent

If your combined income exceeds the first threshold, you calculate tax in two steps. The first step determines whether you owe tax on up to 50 percent of your benefits. The second step determines whether you owe tax on an additional amount, up to 85 percent total.

For the first tier, take your combined income and subtract the threshold for your filing status. Multiply that difference by 50 percent. The result is the amount of benefits subject to tax, but only up to 50 percent of your total benefits received that year. For example, a single filer with combined income of $27,000 and $20,000 in benefits would have $2,000 subject to tax at this tier ($27,000 minus $25,000 = $2,000; $2,000 times 50 percent = $1,000, but capped at $10,000, which is 50 percent of $20,000).

For the second tier, you use a higher threshold: $34,000 for single filers and $44,000 for married couples filing jointly. If your combined income exceeds this second threshold, you calculate an additional amount subject to tax. Take the amount by which you exceed the second threshold, multiply by 85 percent, and add it to the amount from the first tier. The total cannot exceed 85 percent of your benefits. This second tier catches people with very high incomes and ensures they pay tax on a larger portion of their benefits.

How to report taxable Social Security on your return

The Social Security Administration sends you a Form SSA-1099 each January showing the total benefits you received in the prior year. This form goes to you and to the IRS. You use the amount on this form to calculate your combined income and determine how much, if any, is taxable.

You report the taxable portion of your benefits on Form 1040 (the main individual income tax return) or Form 1040-SR (for people age 65 and older). The form has a worksheet that walks you through the combined income calculation and tells you how much to report as taxable. If you use tax software, the software usually does this calculation for you once you enter your Social Security amount.

The taxable amount is added to your other income and taxed at your ordinary income tax rate. If you owe tax on Social Security, you can either pay it when you file your return or arrange to have the Social Security Administration withhold taxes from your monthly benefit. To set up withholding, you complete Form W-4V and send it to your local Social Security office or submit it online through your Social Security account.

Withholding taxes from your monthly benefit

If you expect to owe tax on your benefits, you can ask Social Security to withhold a percentage of your monthly payment. This works the same way withholding works on a paycheck: money is taken out each month and sent to the IRS, reducing what you owe when you file your return.

You choose the withholding rate: 7 percent, 10 percent, 12 percent, or 22 percent. You cannot request a specific dollar amount, only a percentage. The withholding applies to your entire benefit, not just the taxable portion. For example, if you receive $2,000 per month and request 10 percent withholding, $200 is withheld each month.

To start withholding, complete Form W-4V and submit it to Social Security. You can do this online through your my Social Security account, by mail, or in person at a Social Security office. You can change or stop withholding at any time by submitting a new form. If you change your mind mid-year, the change takes effect the following month.

State taxation of Social Security benefits

Thirteen states currently tax Social Security benefits to some degree: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. The rules vary significantly by state.

Some states follow the federal system closely: they tax the same portion of benefits that the federal government taxes, using similar thresholds. Others have their own thresholds, often higher than federal thresholds, which means fewer people owe state tax. A few states tax only people with very high incomes or only certain types of Social Security (such as benefits for people who worked in the state but retired elsewhere).

If you live in a state that taxes Social Security, you report the taxable amount on your state income tax return. The state form usually has a worksheet similar to the federal one. If you are unsure whether your state taxes Social Security or what the rules are, contact your state tax department or check the state's website. Some states offer exemptions for people over a certain age or with income below a threshold.

Planning to reduce or avoid taxation of benefits

Because the thresholds are fixed and have not changed since 1984, more retirees cross them each year. If you are close to a threshold, small changes to your income can affect your tax bill. Some strategies people use include timing when they take withdrawals from retirement accounts, managing investment income, or delaying Social Security if they have not yet started.

If you work while receiving Social Security before your full retirement age, your earnings may reduce your benefit amount (this is separate from taxation). Once you reach full retirement age, there is no earnings limit. This is worth considering if you are deciding whether to work and claim benefits at the same time.

Tax-exempt interest from municipal bonds does not count toward the combined income threshold, but it is still added back in the calculation. This means buying municipal bonds does not reduce your Social Security taxation, even though the interest itself is not taxed. Roth conversions and other retirement account strategies can affect your combined income in ways that increase or decrease your Social Security tax, so it is worth thinking through the full-year picture if you are making large financial moves.

Frequently Asked Questions

Can I avoid paying tax on Social Security by not filing a return?

No. The Social Security Administration reports your benefits to the IRS, and the IRS knows whether you owe tax based on your combined income. If you do not file when you owe tax, you may face penalties and interest. If you are unsure whether you need to file, use the IRS filing requirements worksheet or contact the IRS.

What if I worked in multiple states during my career?

Social Security taxation is based on your current state of residence, not where you worked. If you live in a state that taxes Social Security, you owe tax on the portion determined by federal rules, regardless of where you earned your benefits. If you move to a state that does not tax Social Security, you no longer owe state tax on your benefits going forward.

Does the taxation of Social Security affect my Medicare premiums?

No, but your combined income does affect your Medicare Part B and Part D premiums through a different calculation called Modified Adjusted Gross Income (MAGI). MAGI is similar to combined income but not identical. You may owe higher premiums if your MAGI is above certain thresholds, even if you do not owe tax on your Social Security benefits.

If I am married filing separately, do I always owe tax on my benefits?

Almost always. The threshold for married people filing separately is $0, meaning any combined income at all triggers taxation. The only exception is if you did not live with your spouse at any time during the year and file separately for other reasons. Married couples filing jointly have a much higher threshold ($32,000) and should almost always file jointly if both received Social Security.

Can I request a specific dollar amount to be withheld instead of a percentage?

No. Social Security withholding uses only percentages: 7, 10, 12, or 22 percent of your monthly benefit. If you need more precise withholding, you can file a new Form W-4V mid-year to adjust the percentage, or you can pay estimated taxes directly to the IRS using Form 1040-ES.