Is Social Security Income Taxable?
Social Security benefits are factored into the majority of American retirement plans. They start paying out at age 62 if at least 40 credits, or 10 years, were earned from the years spent working. But is Social Security income taxable? The short answer is yes, but the long answer is a bit more complicated. In fact, about 40% of people who get Social Security have to pay federal income taxes on their benefits.
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Typically, Social Security income won’t be taxed if that check is your only retirement income. However, if you have other retirement accounts like a 401(k) or still have work income, you’ll likely have to pay federal income taxes. Income taxes on Social Security also vary by state.
Social Security benefits include monthly retirement, survivor and disability benefits but not supplemental security income payments. SSI payments are not taxable.
Calculating Your Provisional Income
The basic calculation to figure out what portion of your Social Security income is taxable isn’t difficult, but first you have to figure out your provisional income. Aside from filing status, the biggest factor in figuring out Social Security benefit taxes is your income level outside of Social Security benefits.
Provisional income is defined as your adjusted gross income plus nontaxable interest. Nontaxable interest is interest income that is tax-exempt but you would still report on your federal tax returns. Your provisional income includes pensions, wages, interest, dividends and capital gains.
For example, assume your adjusted gross income is $12,000, you are paid $5,000 in nontaxable interest, and you receive $20,000 in Social Security benefits. By halving your Social Security income and combining those values, you would calculate that your provisional income is $27,000 ($12,000 + $5,000 + $10,000).
Calculating Your Social Security Income Taxes
After provisional income, the second major factor in calculating taxable Social Security income is filing status.
If you are single or married filing separately, regardless of whether you lived with your spouse:
Halve your Social Security income.
Add it to your total other income.
If your total combined income for the year after the above calculation is $25,000 to $34,000, you may owe taxes on up to 50% of your Social Security income.
If your combined total income is above $34,000, up to 85% of your Social Security income may be taxable.
If you are married filing jointly:
Take half of your Social Security income.
Take half of your spouse’s Social Security income.
Add both of the above figures to your combined total income.
If you and your spouse’s total combined income after the above calculation is between $32,000 and $44,000, you may owe taxes on up to 50% of your Social Security income.
If the total annual income is above $44,000, up to 85% of your Social Security income may be taxable.
You can also use the IRS worksheet from Publication 915 to calculate how much of your Social Security benefit is taxable. This worksheet is also in the instructions on Form 1040 and 1040-SR.
Social Security Benefit Taxes by State
Aside from federal tax rates, the way Social Security is taxed also varies by state. Only 13 states tax Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia. The chart below shows how different states handle Social Security taxes.
Taxation | States |
|---|---|
Follows federal tax practices | UT |
State tax practices with modifications | MT, NM |
State exemptions for Social Security tax based on factors like age and income level | CO, CT, KS, MN, MO, ND, NE, RI, VT, WV |
No Social Security tax | AL, AR, AZ, CA, DC, DE, GA, HI, IA, ID, IL, IN, KY, LA, MA, MD, ME, MI, MS, NC, NH, NJ, NY, OH, OK, OR, PA, SC, TN, VA, WI |
No state income tax | AK, FL, NV, SD, TX, WA, WY |
Reporting Your Social Security Income
To report your Social Security income, you can use Form 1040 or 1040-SR. If you receive Social Security income, you will likely get a form from the Social Security Administration called SSA-1099, which has your total benefit amount received for the year in box 5. Enter the total on line 6a and the taxable portion on line 6b. If no amount is taxable, enter -0- on line 6b.
If you have to pay taxes, you can simplify payment in two ways. First, you can make quarterly payments to the IRS rather than paying it all in one lump sum during tax season. You can also have federal tax automatically withheld from your Social Security benefits by filling out Form W-4V or calling the IRS toll-free number at 800-829-3676.
Keep in mind there are only four specific Social Security income withholding percentages allowed: 7%, 10%, 12% or 22%.
How To Reduce Social Security Taxes
Social Security is taxable for most Americans, but there are ways to minimize the amount of taxes you pay, including some retirement account strategies. Although it’s likely not reasonable to try and stay below the taxable thresholds, as the figures are close to the poverty line in many states, it does make sense to reduce taxable income.
Here are a few things you could do to limit the amount you pay:
Contribute after-tax dollars to Roth IRA and Roth 401(k) accounts, so future withdrawals from those accounts are not taxed.
Withdraw traditional IRA and 401(k) retirement account funds before retirement or before taking Social Security income so it’s not factored into provisional income. You can take penalty-free withdrawals from IRA and 401(k) accounts at 59 1/2 years old, while Social Security benefits aren’t paid in full until you turn 67.
If feasible, consider moving to a different state. Most states don’t tax Social Security income, but 13 do, as listed above.
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