Social Security benefits are taxable income under certain circumstances. Whether or not your benefits will be taxed depends on your total income and filing status.
Who has to pay taxes on Social Security benefits?
You may have to pay federal income taxes on your Social Security benefits if you have other substantial income in addition to your benefits. However, no one pays taxes on more than 85% of their Social Security benefits.
You will need to pay taxes on your benefits if:
- You file an individual federal tax return and your total income is more than $25,000.
- You file a joint return, and you and your spouse have a total income that is more than $32,000.
For married people filing separately, you probably will pay taxes on your benefits.
How is the taxable amount of Social Security benefits calculated?
The taxable amount depends on your filing status and your combined income. Your combined income is your adjusted gross income, non-taxable interest, and half of your Social Security benefits. Here is how the taxable amount is calculated:
- Add up your adjusted gross income, nontaxable interest income, and half of your Social Security benefits.
- Compare this total to the base amount for your filing status. If your total is more than the base amount, you will have to report part of your Social Security benefits as taxable income.
- The next step is figuring out how much of your benefits are taxable. You do this by calculating 85% of the excess over the base amount, which gives you the taxable part of your benefits.
Here are the base amounts for 2019:
- If you are single, the base amount is $25,000
- If you are married filing jointly, the base amount is $32,000
- If you are married filing separately, the base amount is $0
So for example, if you are single and your combined income from the calculation above is $30,000, the taxable portion of your benefits is $3,500 ($30,000 – $25,000 = $5,000 x 85% = $4,250).
Are my Social Security benefits taxed by state?
In addition to federal taxes, 13 states also tax Social Security income in some way. These states are:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- North Dakota
- Rhode Island
- Utah
- Vermont
- West Virginia
The rules in each state vary. For example, in some states Social Security is taxable only above certain income thresholds, while other states tax only a percentage of your Social Security. Check with your state’s tax agency to find out the specific rules.
What types of Social Security benefits are taxable?
The major types of Social Security benefits include:
- Retirement benefits – benefits paid to eligible retirees and spouses.
- Disability benefits – benefits paid to eligible individuals who cannot work due to disability.
- Survivor benefits – benefits paid to surviving family members of eligible deceased workers.
All of these types of benefits may be taxable if your combined income exceeds the thresholds discussed earlier. It does not matter what type of Social Security benefit you receive – if your income exceeds the limits, a portion of your benefits will be subject to federal income tax.
Are Social Security benefits taxed if I have other income?
If you have additional income such as wages, self-employment, interest, dividends and other taxable income, it is very possible that your Social Security benefits will be taxed. Even tax-exempt interest like municipal bond interest counts towards the formulas used to determine the taxable percentage.
As discussed above, the key factors that determine if your benefits will be taxed include:
- Your overall combined income
- Your filing status (single, married, etc)
So even a retired person with Social Security benefits can have 50% or 85% of those benefits taxed if they have enough additional income that pushes their combined income over the threshold.
What if I am married and we file separate returns?
If you are married and file separate tax returns, you will likely pay taxes on your Social Security benefits. When you file separately, the threshold base amount for calculating the taxable portion is $0. That means if you have any other income in addition to Social Security, then up to 85% of your benefits can be taxed.
On the other hand, when you file jointly, you and your spouse would have to have a combined income of more than $32,000 before the benefits start being taxed. For this reason, it usually works out better to file jointly instead of separately if you are married.
Are any Social Security recipients exempt from paying these taxes?
There are a few groups who do not have to pay federal income tax on Social Security benefits:
- Low-income beneficiaries who are single and have combined income under $25,000
- Low-income beneficiaries who are married and filing jointly and have combined income under $32,000
- Beneficiaries who have to repay Social Security benefits
- Recipients of Supplemental Security Income (SSI)
Beneficiaries in these categories either do not meet the minimum income thresholds or their income comes entirely from non-taxable means-tested programs. However, these groups may still have to pay state taxes on benefits if they live in one of the states that taxes Social Security.
How do I calculate how much tax I owe on my benefits?
You calculate the taxable portion of your Social Security benefits based on your combined income and filing status using IRS Form 1040 and Form SSA-1099, which shows your gross benefits for the year.
Here are the steps to calculate the taxable amount:
- Add one-half of your total Social Security benefits to your other gross income including tax-exempt interest.
- Compare this total to the base amount for your filing status.
- If your total is above the base amount, then up to 85% of the excess is the taxable portion.
You must report the taxable portion on your Form 1040 tax return as taxable income. The Social Security Administration does not withhold tax from your benefit, so you may need to make quarterly estimated tax payments if you will owe tax.
How much tax will I pay?
The amount of tax you will pay on your Social Security benefits depends on your overall tax situation for the year. Some factors include:
- Your total combined income
- Your tax bracket based on your total taxable income
- The portion of your benefits that are taxable
- Your filing status
- Other deductions or credits you can claim
You can be in a situation where even half of your benefits are taxable, but the end result is you may not actually owe any federal income tax if your income falls within lower brackets. Or you may only owe a small amount of tax on the portion of benefits.
Higher income beneficiaries may have up to 85% of benefits taxed at their ordinary income tax rate. For example, if you are single and in the 22% bracket, up to 85% of your benefits can be taxed at that 22% rate.
Can I reduce or eliminate taxes on my Social Security?
There are some potential ways to try to reduce the taxes on your Social Security income including:
- Contribute to a traditional IRA – this can lower your AGI and combined income
- Harvest capital losses – this can offset capital gains
- Claim itemized deductions – this lowers your AGI so less benefits are taxed
- Defer extra income to the following year – for example delayed retirement credits
However, Social Security taxes are not entirely avoidable for most people. The key factors of your filing status and total income level largely determine if you will pay taxes on benefits.
Some individuals may be able to plan Roth IRA conversions and capital gains realizations strategically over a number of years to optimize the taxable portion of Social Security benefits each year.
Do I have to pay Social Security tax on my job?
Most jobs require you to pay Social Security tax on your wages. The Social Security tax rate is currently 6.2% on gross earnings up to the annual maximum taxable earnings amount ($147,000 in 2023). Your employer matches this by paying 6.2% as well, so the total Social Security tax paid on your wages is 12.4%.
Self-employed individuals have to pay the full 12.4% Social Security tax themselves on their net self-employment income. Independent contractors are also responsible for the full 12.4% Social Security tax through self-employment tax.
A few special employment situations where you do not pay Social Security tax include:
- Most ministers who opt out of Social Security
- Certain state/local government employees who opt out
- Many nonresident aliens temporarily working in the U.S.
But the majority of taxpayers do pay into Social Security from their regular wages or net self-employment income.
How is Social Security tax different from income tax?
Social Security tax and income tax are two distinct types of federal taxes. The main differences are:
| Social Security Tax | Income Tax |
|---|---|
| Tax rate is 12.4% combined (6.2% each for employee and employer) | Marginal tax rates range from 10% to 37% based on income brackets |
| Applies to gross wages or net self-employment income up to $147,000 for 2023 | Applies to taxable income after deductions and exemptions |
| No deductions available | Taxable income reduced by deductions like the standard or itemized deductions |
| Payroll tax withheld from paychecks or paid quarterly | Paid through estimated taxes, withholding, or tax return |
Both Social Security tax and income tax help fund different government programs and services. Income tax pays for national defense, health care, education and more. Social Security tax funds the Social Security and Medicare programs.
What is the Social Security tax rate?
The current Social Security tax rate for employees is 6.2% of gross wages. Employers also pay 6.2%, making the total Social Security tax rate 12.4%. Self-employed individuals pay the entire 12.4% themselves.
Wages up to an annual “wage base limit” are subject to the 6.2% Social Security tax. For 2023, this wage base limit is $147,000. Any amount earned above $147,000 is not subject to the Social Security portion of payroll taxes.
The Medicare tax rate is 1.45% each for employees and employers (2.9% total). There is no Medicare wage base limit. An additional 0.9% Medicare surtax applies on income above $200,000 for single filers and $250,000 for joint returns.
Adding it all up, the total payroll tax rate is 15.3% – 12.4% for Social Security and 2.9% for Medicare. Income above the Social Security wage base is still subject to the 2.9% Medicare tax.
What income thresholds determine Social Security tax rates?
There are two income thresholds to understand for Social Security tax:
- Wage base limit – This is the maximum amount of income subject to Social Security tax, which is $147,000 for 2023. Income above this amount is not taxed for Social Security.
- Threshold for additional Medicare tax – Income above $200,000 (single) or $250,000 (married filing jointly) is subject to an extra 0.9% Medicare surtax.
So once your wages or net self-employment income exceed $147,000 for the year, no additional Social Security tax is owed. However, the Medicare tax still applies to all income. If your income goes above the additional Medicare tax thresholds, you owe the extra 0.9% tax.
Are Social Security benefits taxed like income?
Social Security benefits are taxed differently than other income:
- Only a portion (up to 85%) of benefits may be taxable rather than the full amount
- The portion taxable depends on your filing status and combined income
- These special Social Security tax formulas determine the taxable amount
- Benefits are not taxed for some low-income beneficiaries
So while Social Security benefits are taxed as income, special rules apply. The amount taxed is based on mathematical formulas rather than your entire benefit amount being taxed. Your overall income level determines whether and how much you will pay tax on benefits.
Conclusion
Social Security benefits may be taxable for federal and even state income tax depending on your filing status and total combined income. While not all beneficiaries pay tax on their benefits, the formulas to calculate taxable Social Security can result in up to 85% of benefits being taxed for higher-income retirees.
Understanding how your other income such as pensions, dividends, and interest impact taxation of your Social Security is crucial to properly report your taxes and not be caught off guard by taxes owed on benefits. Planning your gross income levels to optimize Social Security taxation is an important element of an overall retirement income strategy.
