People who have worked hard throughout their lives and contributed to Social Security by paying taxes can be shocked to learn that their benefits might also be subject to taxation.
Depending on where you live, you may have to pay federal income tax — and possibly state income tax on a portion of your benefits.
Here's how to know if your Social Security is taxable and tips on reducing your tax burden if you supplement your income.
Social Security is taxable in some situations
It’s a common misconception that Social Security benefits are tax-free. In reality, you may end up paying taxes on your monthly benefit. The portion that is taxable depends on your income.
You should factor this reality into your retirement savings planning. Create a strategy for mitigating the impact of these taxes if you can so you can get ahead financially.
Up to 85% of your benefit might be taxable
Up to 85% of your Social Security benefits payment could face taxation.
Note that this does not mean you lose 85% of your benefits in taxes. Rather, it is the portion of your benefits that could be subject to taxes.
To determine tax, you must understand what 'combined income' is
Social Security taxes are based on what is known as “combined income.” This is your adjusted gross income plus nontaxable interest and half of your Social Security benefits from the year.
Taken together, this represents your combined income, and any taxes you owe on Social Security benefits will be based on this figure.
One way some people reduce their combined income is by taking withdrawals from a Roth IRA instead of from other retirement accounts. Roth withdrawals are not considered to be part of combined income.
Earn $200 cash rewards bonus with this incredible card
There's a credit card that's making waves with its amazing bonus and benefits. The Wells Fargo Active Cash® Card(Rates and fees) has no annual fee and you can earn $200 after spending $500 in purchases in the first 3 months.
The Active Cash Card puts cash back into your wallet. Cardholders can earn unlimited 2% cash rewards on purchases — easy! That's one of the best cash rewards options available.
This card also offers an intro APR of 0% for 12 months from account opening on purchases and qualifying balance transfers (then 19.74%, 24.74%, or 29.74% Variable). Which is great for someone who wants a break from high interest rates, while still earning rewards.
The best part? There's no annual fee.
These 'combined income' thresholds determine your tax
Single filers with a combined income of under $25,000 and joint filers with a combined income of less than $32,000 owe no tax on Social Security benefits.
From there, tax rates can climb. Up to 50% of your benefits can be taxable if you are a single filer with a combined income of between $25,000 and $34,000 or a joint filer with a combined income of between $32,000 and $44,000.
Finally, up to 85% of your benefits can be taxable if you are a single filer with a combined income above $34,000 or a joint filer with an income above $44,000.
Tax rules apply to more than just retirement benefits
The rules regarding taxation apply to more than just retirement benefits. If you receive other benefits from Social Security trust funds — such as disability or survivor benefits — they also might be subject to taxation.
However, Supplemental Security Income (SSI) benefits are not subject to these rules.
Trending Stories
Your state might also tax you
Some states also tax Social Security benefits. In 2024, the states of Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont all apply taxes to benefits.
The amount you pay may depend on various factors, such as your income. In New Mexico, for example, most people don’t pay state taxes on benefits because the income thresholds are much higher.
If you are a resident of one of these states, simply moving to another state for retirement might be one way to lower your tax burden.
The IRS offers a tool to help you determine tax
If you don’t want to do the math or simply want to double-check the numbers, the IRS offers a tool to help you determine the amount of your benefits that might be taxable.
To use this tool, you will need to know:
- Information that helps determine your gross income
- The value from Box 5 on Form SSA-1099
- If you are receiving railroad retirement benefits, the amount in Box 5 on Form RRB-1099
You can have taxes withheld
For those who don’t want to think about paying taxes come April, you can set up withholding. This means some of your benefits will be withheld each month as a way of prepaying your tax bill.
You can choose withholding values of 7%, 10%, 12%, or 22%, depending on how much you want to put aside. To update your current Social Security benefits to reflect this withholding, use Form W-4V from the IRS.
Or, if you prefer, you can also make quarterly estimated tax payments, which will help you cover your tax liability throughout the year.
The COLA can boost your taxes
Keep in mind that when the annual cost-of-living adjustment (COLA) increases the value of your benefits, it could push your income into a higher Social Security tax bracket.
In 2024, the COLA was 3.2%. In 2025, it will be 2.5%. This will directly impact the amount you receive in your benefits, which could push your income into a higher tax bracket.
If you’re over 50, take advantage of massive discounts and financial resources
Over 50? Join AARP today — because if you’re not a member you could be missing out on huge perks. When you start your membership today, you can get discounts on things like travel, meal deliveries, eyeglasses, prescriptions that aren’t covered by insurance and more.
How to become a member today:
- Go here, select your free gift, and click “Join Today”
- Create your account (important!) by answering a few simple questions
- Start enjoying your discounts and perks!
You’ll also get insider info on social security, job listings, caregiving, and retirement planning. And you’ll get access to AARP’s Fraud Watch Network to help you protect your money, as well as tools to help you plan for retirement.
Important: Start your membership by creating an account here and filling in all of the information (Do not skip this step!) Doing so will allow you to take up 25% off your AARP membership, making it just $12 per year with auto-renewal.
Bottom line
As you work to build your wealth and make money moves to prepare for retirement, try to find ways to keep Social Security taxes low.
Speak to your accountant and financial planner to determine which strategies can reduce taxation of your Social Security benefits.
Lucrative, Flat-Rate Cash Rewards
FinanceBuzz writers and editors score cards based on a number of objective features as well as our expert editorial assessment. Our partners do not influence how we rate products.
Wells Fargo Active Cash® Card
Current Offer
$200 cash rewards bonus after spending $500 in purchases in the first 3 months
Annual Fee
$0
Rewards Rate
Earn unlimited 2% cash rewards on purchases
Benefits
- Low spend threshold for its welcome offer — $200 cash rewards bonus after spending $500 in purchases in the first 3 months
- Cell phone protection benefit (subject to a $25 deductible)
- Can redeem rewards at an ATM for literal cash
Drawbacks
- Foreign transaction fee of 3%
- No bonus categories
- Select “Apply Now” to take advantage of this specific offer and learn more about product features, terms and conditions.
- Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months.
- Earn unlimited 2% cash rewards on purchases.
- 0% intro APR for 12 months from account opening on purchases and qualifying balance transfers. 19.74%, 24.74%, or 29.74% Variable APR thereafter; balance transfers made within 120 days qualify for the intro rate and fee of 3% then a BT fee of up to 5%, min: $5.
- $0 annual fee.
- No categories to track or remember and cash rewards don’t expire as long as your account remains open.
- Find tickets to top sports and entertainment events, book travel, make dinner reservations and more with your complimentary 24/7 Visa Signature® Concierge.
- Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.
Subscribe Today
Want extra-cash moves to come right to you?
Stop browsing endlessly. Get proven ways to earn pocket money, help cover rent, and crush your debt — sent to your inbox daily.