Is Social Security Taxable? How Social Security Benefits Affect Your Taxes
It’s tax season, and if you’re one of the more than 70 million people in the United States receiving Social Security benefits, you probably have questions about how they affect your taxes. Social Security provides four different types of assistance, including the standard retirement benefits, payments for people with disabilities, supplemental funds for low-income families and survivor benefits for family members. Are these benefits taxable? Supplemental Security Income is not. The rest can be.
Check Out: What To Do If You Owe Back Taxes to the IRS
Although the IRS considers Social Security benefits unearned income, you may still have to pay income taxes on some of the money you receive from the program. In fact, about 40% of people who get Social Security have to pay federal income taxes on their benefits. If that check is your only retirement income, you likely won’t have a tax bill. However, if you have other retirement accounts like a 401(k) or still have work income, there’s a good chance you’ll have to pay federal income taxes to the IRS. Income taxes on Social Security also vary by state.
How Much of My Social Security Is Taxable?
Social Security income is only taxed when you earn above certain annual limits. This is why most beneficiaries who only live on their Social Security check receive that money tax-free, as it is in most cases below the annual threshold. Still, your Social Security benefits are never 100% taxable, no matter how much money you earn. How much of your Social Security income is taxable? Depending on your income, either 50% or 85% of your benefits will be taxable.
This is because of the effects of the 1983 legislation that made Social Security taxable. Before that, benefits were completely tax-free. The rationale for the change in policy was that while workers should not be taxed on money they have contributed to the program through FICA tax — which would essentially mean that money was taxed twice — any excess above what workers contributed should be considered taxable income. After some intense investigation and analysis of how much of an average recipient’s benefit was directly paid by the beneficiary, the Social Security Administration concluded it to be about 15%. Thus, in many cases, 85% of Social Security income is now taxable.
Calculating Your Social Security Income Taxes
The IRS offers the following suggestion for determining whether you need to pay taxes on your Social Security income. These calculations are based on your 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, including capital gains.
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.
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 rest of them tax some or none of your Social Security income. The chart below shows these differences between the states.
Taxation | States |
|---|---|
Full exemptions for Social Security income | AL, AR, AZ, CA, DE, GA, IA, ID, IL, IN, KY, LA, MA, MD, ME, MI, MS, NC, NJ, NY, OH, OK, OR, PA, SC, VA, WI |
Partial exemptions for Social Security income | CO, CT, KS, MO, MN, MT, ND, NE, NM, RI, UT, VT, WV |
No state income tax | AK, FL, NH, NV, SD, TN, TX, WA, WY |
State Social Security taxation varies greatly by state and can often be complicated. In Colorado, for example, beneficiaries younger than 65 can exclude up to $20,000 in benefits from their income, along with other retirement income. But beneficiaries 65 and older can deduct all federally taxed Social Security income — previously, there was a $24,000 limit.
In Connecticut, single filers with adjusted gross incomes of less than $75,000 and married filers with AGIs of less than $100,000 can fully exempt all of their Social Security income. But even those who exceed these thresholds can still deduct 75% of federally taxable Social Security benefits on their return.
Other states have their own unique tax structures. You should ensure you’re in compliance by consulting with your state tax board.
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 that Social Security tax only applies to select IRS tax brackets. There are only four specific Social Security income withholding percentages allowed: 7%, 10%, 12% or 22%.
How To Reduce Social Security Taxes
Are there ways to avoid paying taxes on Social Security income? Social Security is taxable for most Americans, but there are ways to minimize the amount of taxes you pay, including some retirement account strategies and common tax deductions. 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 that doesn’t tax Social Security income. You may be able to lower your tax bill.
How Long Does It Take To Get a Tax Refund?
If the IRS owes you money, you probably wonder how long a tax refund can take. You should receive it within 21 days after filing your return electronically. You may have to wait longer — up to a month or more — if you mail a physical copy of your tax return.
FAQ
At what age is Social Security no longer taxed?
Your age is not a factor when determining whether you have to pay taxes on your Social Security income. Instead, the IRS considers your total income for the year. The threshold is $25,000 for a single person and $32,000 for married couples who file their taxes together. If you earn more than this, you may have to pay taxes on the Social Security benefits you received.
Do I have to file taxes if my only income is Social Security?
You may not need to file a tax return if all of your income comes from Social Security. According to the IRS, any single person older than 65 who earned less than $15,700 — and married couples in this age group who earned less than $30,700 — does not have to file a tax return. If your monthly check is more than $1,803, you may need to file. However, if you also receive income from other sources, there's a chance you need to file a return and may be responsible for additional taxes like capital gains tax.
Do I get Social Security tax back?
The Social Security tax you pay during your working years helps pay for the benefits provided to current Social Security recipients. When you're ready to receive your benefits, the Social Security Administration will use money collected from individuals who are still working to pay them. However, if you pay more than the maximum taxable earnings during a single year, you may claim a refund for the excess. For the 2023 tax year, your employer has to stop taking out Social Security taxes when your income surpasses $160,200. You're still obligated to pay the taxes on all income less than that amount.
Allison Hache and John Csiszar contributed to the reporting for this article.
This article originally appeared on GOBankingRates.com: Is Social Security Taxable? How Social Security Benefits Affect Your Taxes
