It may come as a surprise, but Social Security benefits are not entirely tax-free. Depending on your income, up to 85% of your Social Security benefits can be subject to tax. That includes retirement and benefits from Social Security trust funds, like survivor and disability benefits, but not Supplemental Security Income (SSI).
The chance of paying taxes on your Social Security benefits is higher when you have significant taxable income from a job, pension, or traditional IRA, for example. However, many people who only have income from Social Security don’t pay income taxes on their benefits at the federal level.
Still, since like other forms of retirement income taxed by the IRS, taxes on Social Security benefits are a possibility for retirees, it’s important to know how Social Security taxes are calculated.
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How Social Security tax is calculated
Each January, after you begin receiving Social Security benefits, you will receive a statement (Form SSA-1099) showing the total benefits you received in the previous year.
When determining how much you may be taxed, the first step is to calculate your "combined income." The IRS says your combined income is your adjusted gross income (AGI) plus nontaxable interest and half of your Social Security benefits from the year. You then take away certain deductions and exclusions.
The following tiered system determines the percentage of your benefits that are taxable.
- If your combined income is under $25,000 (single) or $32,000 (joint filing), there is no tax on your Social Security benefits.
- For combined income between $25,000 and $34,000 (single) or $32,000 and $44,000 (joint filing), up to 50% of benefits can be taxed.
- With combined income above $34,000 (single) or above $44,000 (joint filing), up to 85% of benefits can be taxed.
If you need clarification on whether your Social Security benefits are taxable, the IRS has a tool on its website that can help. Once you know how much of your benefits are taxable, you must include that amount on Line 6b of Form 1040. That income will be taxable, along with any other income, based on your tax bracket and the income tax rate tied to it.
Tax on lump-sum payment from Social Security
When calculating taxes on your Social Security benefits, you should include the taxable portion of any lump-sum payment you received during the year. (That is true even if that payment includes benefits from a previous year.)
However, the inclusion might lower the taxable portion of your benefits. In that case, the IRS says you can elect to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the previous year.
Note: Lump-sum retirement benefits differ from lump-sum death benefits. It's important to note that no part of a lump-sum death benefit paid by the Social Security Administration (SSA) is taxable.
How to withhold taxes from Social Security payments
It's essential to plan ahead if you know that some of your Social Security benefits will be taxed. To avoid surprises, you can request that federal income taxes be withheld from your monthly payments. To do this, you must fill out Form W-4V and submit it to your local Social Security office. You can choose a withholding rate of 7%, 10%, 12%, or 22%. Withholding taxes from your Social Security payments is one way to cover your potential tax liability before Tax Day arrives.
If you prefer not to have taxes deducted from your monthly Social Security payments, you can make quarterly estimated tax payments. Regardless of the method, the goal is to ensure you have paid sufficient tax to avoid an underpayment penalty from the IRS when you file your income tax return.
State tax on Social Security benefits
In addition to federal taxes, some states tax Social Security benefits. However, the methods and extent of taxation vary.
For example, New Mexico technically taxes Social Security benefits, but many retirees will not pay a dime to the state on that income at tax time. That’s because recently passed state legislation provides higher income thresholds in New Mexico for exempting Social Security benefits.
Although you cannot have state taxes withheld from Social Security benefits, you might be able to make estimated state tax payments. Contact your state Department of Revenue for information about your state's estimated tax payment rules.
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FAQs
Single filers with a combined income of $25,000 to $34,000 must pay income taxes on up to 50% of their Social Security benefits. If your combined income is more than $34,000, you will pay taxes on up to 85% of your Social Security benefits. Do you need help figuring out your required minimum distributions?
How do I calculate how much of my Social Security is taxable? ›
Social Security benefit taxes are based on what the Social Security Administration (SSA) refers to as your “combined” income. That consists of your adjusted gross income, plus any nontaxable interest you earned (and certain other items) and half of your Social Security income.
How do I calculate my taxed Social Security earnings? ›
The third page of your Social Security Statement includes your earnings record. This shows you each year you've worked, your taxed Social Security earnings for each year and your taxed Medicare earnings for each year.
How to determine how much federal tax to withhold from Social Security? ›
To do this, you must fill out Form W-4V and submit it to your local Social Security office. You can choose a withholding rate of 7%, 10%, 12%, or 22%. Withholding taxes from your Social Security payments is one way to cover your potential tax liability before Tax Day arrives.
Is Social Security taxable if it is your only income? ›
Generally, if Social Security benefits were your only income, your benefits are not taxable and you probably do not need to file a federal income tax return.
Why is Social Security taxed twice? ›
The Introduction of Taxes on Benefits
The rationalization for taxing Social Security benefits was based on how the program was funded. Employees paid in half of the payroll tax from after-tax dollars and employers paid in the other half (but could deduct that as a business expense).
What is the 5 year rule for Social Security? ›
You must have worked and paid Social Security taxes in five of the last 10 years. If you also get a pension from a job where you didn't pay Social Security taxes (e.g., a civil service or teacher's pension), your Social Security benefit might be reduced.
How do I know if my Social Security amount is correct? ›
If you are age 18 or older, you can go online, create a personal account at www.ssa.gov/myaccount, and review your earnings record to ensure it is correct. We compute your benefits based on your earnings record.
How does Social Security monitor your income? ›
Every year your employer tells us how much money you earned so we can update your Social Security record. If you're self-employed, you tell us directly. We calculate your monthly retirement and disability benefit by looking at how much you've earned, so it's important to make sure your record is accurate.
Does Social Security automatically withhold taxes? ›
SSA will not withhold tax from your benefits if you are a U.S. person. If you find that you do have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from your benefits.
For the 2022 tax year, seniors filing single or married filing separately get a standard deduction of $14,700. For those who are married and filing jointly, the standard deduction for 65 and older is $25,900.
How to calculate tax from total amount? ›
Calculating the sales tax applied to a purchase is a matter of simply multiplying the tax rate by the purchase price using the equation sales tax = purchase price x sales tax rate. Adding the sales tax to the original purchase price gives the total price paid with tax.
At what age is Social Security no longer taxable? ›
Bottom Line. Yes, Social Security is taxed federally after the age of 70. If you get a Social Security check, it will always be part of your taxable income, regardless of your age. There is some variation at the state level, though, so make sure to check the laws for the state where you live.
How do you get the $16728 Social Security bonus? ›
Have you heard about the Social Security $16,728 yearly bonus? There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.
Does Social Security count as earned income? ›
Unearned Income is all income that is not earned such as Social Security benefits, pensions, State disability payments, unemployment benefits, interest income, dividends, and cash from friends and relatives. In-Kind Income is food, shelter, or both that you get for free or for less than its fair market value.
How much money can I earn without affecting my Social Security? ›
In 2024, if you're under full retirement age, the annual earnings limit is $22,320. If you will reach full retirement age in 2024, the limit on your earnings for the months before full retirement age is $59,520.
Is Social Security considered earned income? ›
Unearned Income is all income that is not earned such as Social Security benefits, pensions, State disability payments, unemployment benefits, interest income, dividends, and cash from friends and relatives. In-Kind Income is food, shelter, or both that you get for free or for less than its fair market value.
