Nearly 56% of Social Security recipients
Find out when your Social Security benefit income is taxed and how that tax is calculated based on your filing status and other financial factors.1
When do you pay income tax on Social Security?
People generally pay taxes on Social Security benefits when they have substantial income in addition to their benefits.2 These additional sources of income may include wages, self-employment, dividends, interest and other income that you must report on your tax return.
It's possible to owe taxes on most types of Social Security income, including monthly retirement, survivor and disability benefits. However, supplemental security income (SSI) payments are not taxable. It's also important to know that SSI is not considered earned income for the Earned Income Credit.
How much of Social Security is taxable?
Although it's possible that you won't owe any taxes on your benefits, some Social Security recipients may owe taxes on up to 85% of their Social Security income—which means no taxpayer ever pays taxes on 100% of their Social Security benefits. The
Part of your Social Security benefits may be taxable if:
- You file taxes as single, head of household or qualifying widow or widower, and half your Social Security income plus the total income from other sources adds up to more than $25,000.
- You are married and file a joint tax return, and half your Social Security income plus income from other sources is more than $32,000.
Up to 50% of your Social Security benefits may be taxable if:
- You file taxes as single, head of household or qualifying widow or widower, and half your Social Security income plus income from other sources total $25,000 to $34,000.
- You are married and file a joint tax return, and half your Social Security income plus any income from other sources is $32,000 to $44,000.
Up to 85% of your Social Security benefits may be taxable if:
- You file taxes as single, head of household or qualifying widow or widower, and the total of half your Social Security income plus income from other sources sums to more than $34,000.
- You are married and file a joint tax return, and half your Social Security income plus the total income from other sources is more than $44,000.
How to calculate Social Security tax
To find out how much of your benefits are taxable, you'll calculate what the IRS terms your "combined income." This is the sum of half of the Social Security money you received during the calendar year plus other income sources that you've earned during the year, such as pensions, wages, dividends, interest and capital gains.
The IRS formula for calculating combined income for Social Security tax look like this:
Combined income = AGI + nontaxable interest + 1/2 Social Security benefits
- Begin with your adjusted gross income (AGI). The AGI is your gross income minus any adjustments. Gross income includes your wages, dividends, interest, capital gains, retirement distributions, business income and possibly other taxable income.
- Then add nontaxable interest. This interest is tax exempt, but it still gets included in the calculation.
- Then add half of your Social Security benefits. To get this figure, refer to your Social Security Benefit Statement (Form SSA-1099), which you should receive each January. The statement shows the total amount of benefits you received in the previous year.
Every household's circumstances, including filing status and personal finances, are unique. The IRS provides an
How do you pay taxes on Social Security benefits?
If you have to pay taxes on your Social Security benefits, you can have a few options for the method of payment.
- Tax filing. Using form 1040, you can report the amount from your Social Security statement and place that on line 6a.
- Quarterly estimated payments. You can make payments to the IRS four times per year.
- Withholding. You can have federal taxes
withheld from your Social Securitypayments.
Which states tax Social Security benefits?
In addition to Federal income tax, you may owe state income tax on Social Security benefits, depending upon the state where you live.
The US states that tax Social Security benefits are:
- New Mexico
- Rhode Island
- West Virginia
How to avoid tax on Social Security benefits
The fundamental strategy behind minimizing your tax on Social Security benefits is to keep your total taxable income as low as possible. Ideally, you can reduce your combined income below the thresholds the IRS uses to calculate the tax owed on Social Security income.
Your combined income is half your Social Security income plus income from other sources, such as wages, dividends, interest, pensions, retirement account distributions and business income. You may not be able to completely avoid paying taxes on Social Security, but there at least three ways to reduce the tax that you owe:
- Use Roth IRA accounts. Since contributions to a Roth IRA are made with after-tax dollars, qualifying withdrawals are not taxable.2 Withdrawals from a Roth IRA are generally tax free if they are made after age 59½ and the account has been active for at least five years.
- Withdraw taxable income before starting benefits. For some individuals and households, it can make sense to make withdrawals from taxable accounts before receiving Social Security benefits. For example, if it makes sense for your retirement plan, you can withdraw from traditional IRAs, 401(k)s, and taxable brokerage accounts for retirement income. If executed correctly, you could reduce taxes and, by delaying Social Security, increase your benefits.
- Consider a tax-advantaged annuity.
Annuitiesare financial products that combine insurance and savings into one. They can provide tax-deferred earnings and guaranteed income in retirement for as long as you live.
When do you pay income tax on Social Security? Every person's tax and financial circumstances are unique. A tax advisor can offer more targeted guidance for individuals and households needing help with taxes. While Thrivent does not offer tax help, a