Social Security benefits are a major source of income for many retired Americans. However, not everyone knows that these benefits may be subject to federal and even state taxes, depending on your overall income. Knowing how these taxes work can be a crucial step in avoiding surprises and planning effectively for retirement.
Social Security Taxation
To determine whether you owe taxes on Social Security benefits, the IRS calculates your “combined income.” Combined income is your adjusted gross income (AGI) plus any nontaxable interest and half of your Social Security benefits. This combined amount is compared to IRS income thresholds that dictate if, and how much, of your benefits are taxable.
Federal Tax Thresholds
The percentage of your benefits subject to tax varies based on your filing status and combined income. Here’s a breakdown:
| Filing Status | Combined Income Thresholds | Taxable Percentage |
|---|---|---|
| Single, Head of Household, or Qualifying Widow(er) | $25,000 – $34,000 | Up to 50% of benefits |
| Above $34,000 | Up to 85% of benefits | |
| Married Filing Jointly | $32,000 – $44,000 | Up to 50% of benefits |
| Above $44,000 | Up to 85% of benefits | |
| Married Filing Separately | Any income if lived with spouse | Up to 85% of benefits |
If you’re filing as single, head of household, or qualifying widow(er), combined income between $25,000 and $34,000 means up to 50% of your benefits could be taxable. If your income exceeds $34,000, up to 85% of benefits may be taxable. For married couples filing jointly, the 50% taxable rate applies to combined incomes between $32,000 and $44,000, and the 85% rate applies to incomes above $44,000. Married individuals filing separately face taxes on up to 85% of benefits if they lived with their spouse at any time during the year.
State Taxes
In addition to federal taxes, some states also tax Social Security benefits. Currently, nine states—Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia—apply state taxes to Social Security benefits. West Virginia, however, is phasing out its Social Security tax by 2026.
| State | Social Security Tax Status |
|---|---|
| Colorado | Taxed |
| Connecticut | Taxed |
| Minnesota | Taxed |
| Montana | Taxed |
| New Mexico | Taxed |
| Rhode Island | Taxed |
| Utah | Taxed |
| Vermont | Taxed |
| West Virginia | Taxed (Phasing out by 2026) |
If you live in a state that taxes Social Security, it’s a good idea to factor these state taxes into your financial planning. Some states offer exemptions or deductions that may help reduce the taxable amount of Social Security income.
Benefits
If you expect that you’ll owe taxes on your Social Security, the IRS allows you to have taxes withheld from your monthly benefits. To do this, you’ll need to file Form W-4V with the Social Security Administration. This form lets you select a withholding rate of 7%, 10%, 12%, or 22% of your benefits.
Using withholding can help prevent an unexpected tax bill come tax time, making it a valuable option for those with higher combined incomes. Additionally, IRS Publication 915 provides a worksheet to help you calculate how much of your benefits may be taxable. Alternatively, a tax professional can help ensure you’re on the right track.
Managing Social Security taxes can seem complicated, but knowing the basics and planning ahead can make a big difference in your retirement finances. By knowing how federal and state taxes apply, calculating your combined income, and possibly setting up withholding, you can stay on top of your Social Security taxes and avoid unnecessary surprises.
FAQs
How is combined income calculated?
Combined income is AGI plus nontaxable interest and half of Social Security benefits.
What percentage of Social Security benefits can be taxed?
Up to 85% of benefits may be taxed, depending on income.
Which states tax Social Security benefits?
Nine states, including Colorado and Connecticut, tax Social Security benefits.
How can I withhold federal taxes from my benefits?
Submit Form W-4V to the Social Security Administration.
Where can I find detailed tax info on Social Security?
Refer to IRS Publication 915 for details on Social Security taxes.
