More than 40% taxpayers who are receiving Social Security benefits need to pay federal income taxes on their social security benefit amount. This will happen when they have another substantial income in addition to their benefits. Substantial income can be wages, income from self-employment, interest, dividends, and other taxable income that taxpayers need to report on their annual tax return.
Do You Pay Taxes on Social Security?
When a person starts to draw Social Security income, taxes may be the last thing on their mind. Taxpayers in the United States are surprised to know that if they receive Social Security benefits, they need to pay income tax on up to half or even 85% of their Social Security income.
Not only the part of your Social Security benefits could be taxable, but the additional income will also impact your AGI, taxable income, and possibly your tax bracket. On the other hand, taxpayers’ benefits will not be taxable if their total income is below the base amount. If you’re married and filing jointly with your spouse, then your combined income and Social Security benefits are used to figure your total income.
According to the Internal Revenue Service (IRS) rules, individuals need to pay tax on their Social Security benefits if they file a federal tax return as a “single individual” and if their combined income is lie between $25,000 and $34,000, they need to pay income tax on a maximum of 50% of their social security benefit amount but if an individual file an annual federal tax return as a “single individual” and their combined income is exceed from $34,000, up to 85% of their benefits amount will be taxable.
If you file a joint return, and you and your spouse have a combined income between $32,000 and $44,000, you need to pay income tax on up to 50% of your benefits. But if you file a joint return, and you and your spouse have a combined income more than $44,000, then up to 85% of your benefits may be taxable. If you are married but file a separate tax return then you must pay taxes on your benefits.
Each January, the Social Security Administration mails a Social Security Benefit Statement (Form SSA-1099 or SSA-1042S) that will show you the amount of benefits you received in the past year. Taxpayers can utilize this benefit statement during completing their annual federal income tax return to find out whether their benefits are subject to tax or not. If you do have to pay taxes on your Social Security benefits, you can select to have federal taxes withheld from your benefits to get rid or lessen owing tax in the future.
What is the taxable portion of your Social Security Income?
Social Security payments have been subject to taxation if they cross certain income limits since 1983. However, no one needs to pay tax on their full Social Security benefit. The maximum taxable portion of your social security benefit is 85%. You can determine where your total income falls and how much of your Social Security income is taxable based on your tax filing status.
- Single, Head of Household, or Qualifying Surviving Spouse, the minimum amount is $25,000 and the maximum is $34,000.
- Married Filing Jointly, the minimum amount is $32,000 and the maximum is $44,000.
- Married Filing Separately, the minimum amount is $0 and the maximum is $0.
(Note: Those who have the Married Filing Separately status but lived apart from each other for the entire tax year can use the same base and maximum amounts as single filers.)
Taxable Percentage Based on Your Income
The IRS provides a worksheet that you can use to calculate your total income taxes due if you receive Social Security benefits. In the below table the taxable portion of Social Security benefits based on income levels for both individuals and married couples are listed.
| Filing Status | Combined Income | Taxable Portion of Benefits |
| Individual | $25,000-$34,000 | Up to 50% |
| Individual | Over $34,000 | Up to 85% |
| Married (Filing Jointly) | $32,000-$44,000 | Up to 50% |
| Married (Filing Jointly) | Over $44,000 | Up to 85% |
How does Social Security Income Tax Work?
To find out when Social Security income is taxable is very important. To resolve this problem you’ll first need to calculate your total income. The formula for total income, or what the Social Security administration (SSA) refers to as “combined income”, you need to consider your adjusted gross income (AGI), including any nontaxable interest, and half of your Social Security benefits.
If you are married and filing jointly with your partner then both of your combined incomes plus half of your Social Security benefits will be used to calculate your total income. Individuals will also need to add back the following items in their AGI:
- Employer-provided adoption benefits (Form 8839, Part III),
- The student loan interest deduction
- Foreign Earned Income or Foreign Housing (Form 2555)
- Income earned by a bona fide resident of American Samoa or Puerto Rico
Then you need to compare your total income with the minimum amounts of your filing status to find out how much of your Social Security income is taxable. After following the above listed steps you will be able to see that you fall into one of three categories.
- If your total income is below the base amount then your Social Security benefits are not taxable.
- If your total income is between the minimum and maximum amount then your Social Security income is taxable up to 50%.
- In the third case, If your total income is above the maximum amount then your Social Security benefits are taxable up to 85%.
Are all kinds of Social Security income taxable?
Everyone wants to find out the answer to “Are all kinds of Social Security income taxable?” It is very important to know that the tax rules for Social Security apply to more than just retirement benefits and keep in mind that all Social Security benefits are taxable in the same way. This will be applicable for spousal benefits, survivor benefits, and disability benefits such as Social Security Disability Insurance (SSDI).
It is also very important to note that Social Security benefits that are paid to a child under his/her Social Security number (SSN) could be potentially taxable for the child, not for the parent. The best thing to know is that Supplemental Security Income, or SSI, is non-taxable because it is a needs-based federal benefit. SSI is not a part of Social Security benefits and you will not figure it into the taxable benefit formula.
State Income Tax on Social Security
In the United States there are only eleven states that levy state income tax on Social Security in certain cases. It is advised to you please consult with your state tax agency if you live in the following states
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
Like the federal tax, how these States calculate Social Security benefits taxable part varies by income and other criteria.
Paying Social Security Tax
Social Security beneficiaries have a choice when it comes to getting their payments. Just as individuals can request additional tax withholding from their regular W-2 income, they can have the Internal Revenue Service (IRS) withhold taxes from their Social Security payments. So, when you come to know that your Social Security benefits are taxed then you can voluntarily arrange to have the tax withheld from your Social Security payment by filing a Form W-4V.
Otherwise, you need to make quarterly estimated tax payments to the IRS. After calculating the amount of your Social Security income that is taxable, individuals need to enter that amount on the individual’s annual income tax return. On IRS Form 1040, individuals must write the total amount of their Social Security benefits on line 5a and the total taxable amount on line 5b. If taxpayers are using tax software, then it will automatically calculate the taxable portion of their Social Security benefits.
When are Social Security Benefits Tax-Free?
It is very crucial for taxpayers to know that at what age they feel free from paying taxes on Social Security benefits.
Social Security income is subject to federal income tax no matter how old Taxpayers are. Keep in mind that the IRS calculates Social Security benefits’ taxable portion based on income, not age.
Usually, individuals’ Social Security benefits will be subject to federal tax when their total income will cross the thresholds discussed above. This includes investment income that is held in retirement accounts like Traditional 401(k)s and IRAs. The current taxable portion of taxpayers’ Social Security benefits won’t exceed 85%.
