Millions of Americans receive Social Security benefits each month, and many of those people struggle to survive on just those benefits alone. If you are wondering how much Social Security pays, the average Social Security check in 2022 was only about $1,600 per month, so that is not a large income. Income taxes on those Social Security benefits could create an even larger burden for those individuals. So, do you have to pay taxes on your Social Security payments? The answer depends on your total income during the year, and your income also affects what percentage of your benefits are taxable. If you receive Social Security benefits and wonder whether they are taxable, then keep reading as we give you all the details you need to know.
Is Social Security Income Taxable?
Many people wonder, “Do you pay taxes on Social Security?” Yes, Social Security income is taxable in many situations, and most Americans pay taxes on at least a portion of their Social Security benefits. Taxpayers will need to report Social Security income on their tax return to the IRS. There are basically three possibilities when it comes to the taxation of Social Security benefits, and there is an IRS guide regarding Social Security benefits.
First, you might not owe taxes on your benefits at all if your adjusted gross income (AGI) is low enough. However, the threshold is fairly low, and most people owe taxes on some of their benefits. We will discuss the specific calculation of this tax in greater detail in the next section. The next possibility is that you could owe taxes on half of your Social Security benefits. This means that you would pay taxes on 50% of your benefit amount, while the other 50% would be tax-free.
Finally, if your income is higher, you will owe taxes on 85% of your Social Security benefits. You are never required to pay federal income tax on the final 15% of your benefits, regardless of your total income. That final 15% remains untaxed at the federal level, although you could still owe state taxes on it. You should also understand that the taxation of Social Security benefits is based on your income and not your age. Some people believe that Social Security is no longer taxed once you reach a certain age, but that is not the case.
Calculating Income Taxes On Social Security Benefits
So, how is Social Security taxed? The answer depends on performing a calculation of your income. The calculation is not overly complex, although it does require a few steps. Also, the method and brackets are slightly different for an individual versus a married couple. We will outline the steps to calculate the tax on your benefits in each situation below.
First, you will need to start by calculating what the IRS calls your combined income. Note here that combined retirement income refers to the sum of various income sources and not income added between spouses. To get your combined income, you will need to do the following. You should add your adjusted gross income plus nontaxable interest income plus half of your Social Security benefits. Your adjusted gross income typically includes income from several sources, like a job, withdrawals from retirement accounts, pensions, annuity payments, or other sources. Even though your nontaxable interest income is not taxed, you still need to include it in this calculation. Finally, you will add half of your Social Security benefits. You will be able to get this number from Form SSA-1099, which is mailed to all Social Security beneficiaries in January. This form shows the total amount of benefits received during the previous year.
Once you have calculated your combined income, you will need to examine the brackets for individual taxes. If your combined income is less than $25,000 for the year, then none of your Social Security benefits will be considered taxable income. You won’t owe any taxes on those benefits.
If your combined income is between $25,000 and $34,000, you will owe taxes on 50% of your benefits. This means that half of your benefits will be included in your taxable income for the tax year. Individual tax filers with a combined income of more than $34,000 will owe taxes on 85% of the benefits they receive from the Social Security Administration. Remember that the final 15% of your benefit amount is never taxed. These same rules and amounts apply to those filing taxes as a head of household.
— Married Couples
For married couples filing a joint return, the calculation is the same, although the brackets are different. For those with joint filing status, you will again need to calculate your total combined income. Again, this includes your adjusted gross income plus tax-exempt interest plus half of your Social Security benefits. This time, you will need to add those items from both spouses.
Once you have your combined income, you need to check the brackets to determine how much of your Social Security is taxable. For married couples with a combined income of less than $32,000, no tax will be due on any of your Social Security benefits. For couples with a combined income of between $32,000 and $44,000, half of their Social Security benefits will be taxed. Lastly, for those with a combined income of more than $44,000, 85% of your benefits will be taxed.
Remember that these calculations only tell you how much of your benefit payments will be taxed. This is the amount that will be included in your taxable income on your income tax return. This calculation does not tell you how much tax you will owe on your benefits. The amount of tax that you owe will depend on your overall tax bracket for the year. You should also know that Railroad Retirement benefits are generally treated like Social Security benefits for tax purposes.
How To Withhold Taxes From Your Social Security Check
If you have to pay taxes on your Social Security benefits, you likely don’t want to be hit with a big tax bill at the end of the year. For most people, this is not an issue during their working years. Your employer automatically withholds all the proper payroll taxes from your check. For self-employed individuals, you must pay quarterly taxes to the IRS. However, income taxes are not automatically withheld from your Social Security check each month. Remember how Social Security works? You pay taxes during your working years and receive benefits each month upon retirement. However, no income taxes are withheld from those monthly benefit payments. So, is there a way to have these taxes withheld from your check so that you aren’t stuck with a big bill at the end of the year? The answer is yes!
You will need to complete Form W4-V and file it with the Social Security Administration. This is the Voluntary Withholding Request form, and this notifies the Social Security Administration to begin withholding taxes from your benefits. You may choose to have taxes withheld at a few different rates. Your options include tax rates of 7%, 10%, 12%, and 22%. You should select the percentage that works best for your personal financial situation. Consider consulting with a tax professional if you have any questions about which amount should be withheld. When planning your monthly budget, remember that Medicare premiums will most likely be withheld from your Social Security check.
Finally, there is another option for paying taxes throughout the year. You could also file and pay estimated quarterly taxes. This is the same way that self-employed individuals pay their taxes throughout the year. However, this method is a little more complicated, and it requires attention every quarter. Most people find it much easier to file the withholding request with the SSA and allow them to automatically withhold taxes from each check.
Taxes On Other Social Security Benefits
We have already discussed whether retirees will need to pay income tax on their Social Security retirement benefits, but what about other types of Social Security benefits? Are taxes due on disability benefits or SSI benefits? We will discuss the other types of Social Security benefits here and whether you will need to include those on your federal tax return.
— Spousal Benefits
Yes, Social Security spousal benefits can be taxable, depending on your total income. If you are receiving spousal benefits, you are probably married to the primary beneficiary. In that case, you probably have a “married filing jointly” tax status. To determine whether your benefits are taxable, you will need to perform the same calculation as previously mentioned in this article.
First, you will need to find your total combined income by adding your adjusted gross income plus tax-exempt interest plus half of your Social Security benefits. If this number is less than $32,000, you will not owe taxes on your spousal benefits or your spouse’s primary retirement benefits. If the sum is between $32,000 and $44,000, you will owe taxes on half of your benefits. Finally, if you have a combined income of more than $44,000, you will be required to pay taxes on 85% of your benefits.
Remember that it is possible to receive spousal benefits from the work record of an ex-spouse, so an unmarried individual might be receiving spousal benefits. For an individual, the calculation works the same way. If your combined income is less than $25,000, you will owe no tax on your spousal benefits. For a combined income between $25,000 and $34,000, taxes will be due on half of your spousal benefits. Finally, you will be taxed on 85% of your spousal benefits if your combined income is more than $34,000.
— Survivor Benefits
Survivor benefits are usually paid to either a surviving spouse or a dependent child of the deceased. Survivor benefits paid to children are almost never taxed. The reason why there is no tax liability on these benefits is that children rarely have any other income. The combined income of the child is almost always below the $25,000 threshold, so they will owe no taxes on their survivor benefits. If a parent or guardian receives the payments on behalf of a child, that person does not need to report the income on their tax return.
Survivor benefits paid to a surviving spouse follow the same tax rules as other Social Security payments, like individual retirement benefits. If the surviving spouse has an income of between $25,000 and $34,000, then taxes will need to be paid on half of the survivor benefits. If the income is greater than $34,000, the surviving spouse will need to pay taxes on 85% of the survivor benefits.
— Social Security Disability Benefits
So, is Social Security disability taxable? We are sure to sound like a broken record by now, but disability benefits can be taxable depending on the total income of the beneficiary. The rules for the taxability of Social Security disability benefits are the same as the rules regarding retirement benefits. Currently, the thresholds are the same as well. Some taxes will be due if the combined income of an individual is more than $25,000. Likewise, married couples with a combined income of more than $32,000 will owe taxes on their disability benefits.
— Supplemental Security Income (SSI) Benefits
The Internal Revenue Service applies different rules to SSI benefits. Remember that SSI is a needs-based financial assistance program. You do not need a work history to qualify for the program, and there is no requirement that you have paid any Social Security taxes to receive SSI benefits. The SSI program is available to those age 65 and older, those who are blind, or those who are unable to work due to a disability. No federal taxes are ever due on SSI payments. SSI benefits receive a complete exemption from the IRS. Since you must have limited income and resources to qualify for SSI, your income will never be high enough to require taxation.
State Taxes On Social Security Benefits
So far, we have only discussed federal taxes on your Social Security income. So, what about state income taxes on that income? States follow three main themes when it comes to the taxation of Social Security benefits. Most states do not tax Social Security benefits at all, regardless of your overall income. A couple of states follow the same rules as federal taxes. Those states use the same formula for determining how much of your Social Security benefit is taxable, and that amount will be taxed at the state income tax rate. Finally, the remaining states partially tax your benefits with exemptions for certain income levels and ages. Here is how those categories break down.
- Benefits Taxed According To Federal Rules: Minnesota, Utah
- Benefits Partially Taxed Based On Income & Age: Colorado, Connecticut, Kansas, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Vermont, West Virginia
- No State Income Tax On Social Security Benefits: Alabama, Alaska, Arizona, Arkansas, California, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin, Wyoming
Reducing Your Taxes On Social Security Benefits
Now that you know how Social Security benefits are taxed and when you will owe taxes on them, you are likely trying to think of ways to reduce your tax obligation. There are ways that you can reduce the amount of tax you will be required to pay on your Social Security benefits. Here are three of the most common methods.
— Utilize Roth Retirement Accounts
A Roth IRA or Roth 401k can be a great method for reducing how much money you’ll pay in taxes when you start receiving Social Security benefits. Remember that money placed into a Roth account goes into the account on an after-tax basis. This means that you pay taxes on that money during the year in which it is earned and not when the withdrawal occurs. Therefore, withdrawals from a Roth account are not included in your taxable income calculation when determining how much tax will be due on your Social Security benefits.
As long as you are age 59 1/2 or older and have had the money in a Roth account for five years or more, the money will not be taxed when it is withdrawn. Utilizing a Roth account could save you a lot of tax dollars over the years after you start receiving your Social Security benefits. Many people utilize a combination of Roth IRAs and traditional IRAs to achieve their overall financial goals.
— Purchase An Annuity
A qualified longevity annuity contract (QLAC) is a special type of annuity that can help save money on your taxes. These annuities can be purchased with money from a qualified retirement plan, and they do not follow the same required minimum distribution rules as most retirement accounts. In fact, you can defer distributions on a QLAC all the way to age 85. Delaying the payout from the annuity will lower your income during the initial years after you start to receive Social Security. This means that you will owe less tax on your Social Security benefits during these years.
— Take Retirement Distributions Early
Instead of pushing distributions later, another method for saving money on taxes is to take these distributions earlier. Most retirement accounts allow for distributions without a penalty starting at age 59 1/2. You can wait until age 70 to start your Social Security benefits, so there is a ten-year period during which you can take distributions from your retirement account without any effect on the taxation of your Social Security benefits.
The Bottom Line
When you reach retirement age and start your Social Security benefits, you might wonder, “Is Social Security taxed?” The answer is yes, but not always. Federal taxes might be due on up to 85% of your benefits, and whether or not you pay taxes on those benefits depends on your total income. Most states do not tax Social Security benefits, but there are a few states that do levy an income tax on your benefits. There are a few strategies that you can use to reduce the taxes you will pay on Social Security benefits, and those include Roth accounts, annuities, and early distributions from retirement accounts.
Frequently Asked Questions
How much of your Social Security income is taxable?
The amount of your Social Security income that is taxable depends on your total income. Up to 85% of your Social Security income might be taxable. The final 15% of this income is never taxed. For an individual with a combined income of less than $25,000, none of their Social Security income will be taxed. If their combined income is between $25,000 to $34,000, half of their Social Security benefits will be taxable. Finally, if their combined income is greater than $34,000, 85% of their benefits will be taxed.
At what age is Social Security no longer taxed?
So, are Social Security benefits taxable regardless of your age? Yes, Social Security payments can be taxed at any age. The taxability of your Social Security benefits depends on your total income and not your age. Many people ask, “At what age do you stop paying taxes on Social Security?” The answer is never. You could be 100 years old and still owe taxes on your Social Security benefits if your income is higher than the threshold. There are a few states that allow state tax exemptions based on age. However, most states do not tax Social Security benefits at all anyway.
How can I avoid paying taxes on my Social Security?
The only way to avoid paying taxes on Social Security is to keep your total combined income below the lower threshold. This means that an individual will need a total combined income of less than $25,000 for the year. There are different ways of lowering your taxable income. Some of those ways include utilizing a Roth account, taking early distributions from retirement accounts, and using qualified annuities.
What is the maximum Social Security benefit that is taxed?
The maximum amount of your Social Security benefit that will be taxed is 85%. This means that 15% of your Social Security benefit is never taxed by the IRS. When it comes to state taxes, most states do not tax Social Security benefits. However, a handful of states levy income taxes on Social Security benefits, and the amount that is taxed will depend on your income and age.
What are the tax brackets for Social Security?
There are three brackets for the amount of your Social Security benefit that is taxable. Those three brackets are zero, 50%, and 85%. This means that you will owe taxes on either none of your benefits, half of your benefits, or 85% of your benefits. This amount will count toward your taxable income. The specific tax bracket into which you fall will depend on your overall income. The portion of your Social Security benefits that is taxable will be taxed at your normal income tax rate.
What is the tax rate on Social Security income?
The tax rate on social security income is the same as the tax rate on your regular income. The rate depends on your total adjusted gross income for the year. If taxable, Social Security income is added to your regular taxable income. Therefore, it will be taxed at the same rate as income from wages, taxable interest, or any other income reported on your tax return.
Who is exempt from paying Social Security tax?
Almost no one is exempt from paying Social Security tax. There are very few exemptions to the 6.2% payroll tax for Social Security. Only a few religious organizations and non-citizens can opt out of paying this tax. When it comes to paying income tax on your Social Security benefits, many people might not owe taxes on those. If you have a combined income of less than $25,000, you will not owe income tax on your Social Security benefits. For married couples, that threshold rises to $32,000.
Does Social Security count as taxable income?
Whether or not Social Security counts as taxable income depends on your total combined income. The IRS provides a worksheet detailing how to calculate your total combined income. You will need to add your adjusted gross income plus nontaxable interest plus half of your Social Security benefits. If this amount is less than $25,000, you will not count your Social Security payments as taxable income. If the amount is between $25,000 and $34,000, half of your Social Security payments will count as taxable income. Lastly, for those with a combined income of more than $34,000, 85% of your Social Security benefit will be counted as taxable income.
Can I get a refund if I overpay my Social Security taxes?
If you overpaid your Social Security taxes, you might be able to get a refund. To do so, you’ll need to file Form 1040X, Amended U.S. Individual Income Tax Return, with the IRS.
Are there any exceptions to paying the self-employment tax?
There are a few exceptions to paying the self-employment tax. The self-employment tax is a Social Security and Medicare tax that all workers must pay on their net earnings from self-employment. However, there are a few exceptions to this rule. First, if your net earnings from self-employment are less than $400 in a year, you do not have to pay the self-employment tax. Second, if you are retired and you receive Social Security or railroad retirement benefits, you do not have to pay the self-employment tax on those benefits. Third, if you are married and file a joint return with your spouse, neither you nor your spouse has to pay the self-employment tax on any income that is reported on your return. Finally, if you are a church employee who receives wages of $108 or more per week (or $5,200 or more per year), you do not have to pay the self-employment tax on those wages.