Yes, some of your Social Security benefits may be taxed as income

Whether you owe federal income tax on your Social Security benefits depends on your total income for the year. The IRS uses a formula based on what they call combined income — your adjusted gross income plus nontaxable interest plus half of your Social Security benefits. If that number exceeds a certain threshold, you will owe tax on a portion of your benefits.

The thresholds are $25,000 for single filers and $32,000 for married couples filing jointly. These thresholds have not changed since 1984, so more people cross them each year as their other income grows. Some states also tax Social Security benefits, though most do not.

Key Takeaways

  • You may owe federal tax on your benefits if your combined income exceeds $25,000 (single) or $32,000 (married filing jointly).
  • Combined income includes your adjusted gross income, nontaxable interest, and half your Social Security benefits — not just your benefits alone.
  • At most, 85 percent of your benefits can be taxed, even if your combined income is very high.
  • You can have taxes withheld from your benefit payments each month, or pay estimated tax quarterly, to avoid a large bill at tax time.
  • A handful of states tax Social Security benefits under their own rules, separate from federal tax.

How the IRS calculates whether your benefits are taxed

The calculation starts with your combined income. Add together your adjusted gross income (wages, pensions, investment income, and other sources), any nontaxable interest you earned, and half of your Social Security benefits. That total is what the IRS uses to determine taxation.

If your combined income is below the threshold for your filing status, none of your benefits are taxed. If it exceeds the threshold, the IRS taxes either 50 percent or 85 percent of your benefits, depending on how far above the threshold you are. The exact amount is calculated on Form 1040 or Form 1040-SR (the version designed for people 65 and older).

For example, a single person with $30,000 in combined income is $5,000 above the $25,000 threshold. The first $9,000 above the threshold is taxed at 50 percent of benefits, so this person would owe tax on $2,500 of their benefits. A single person with $50,000 in combined income would owe tax on a larger portion, but still no more than 85 percent of the total benefits received that year.

Types of income that count toward the threshold

Combined income includes more than just your Social Security check. Wages from work, pensions, distributions from retirement accounts, interest and dividends, rental income, and self-employment income all count. So does income from a spouse if you file jointly.

Nontaxable interest — such as interest from municipal bonds — also counts toward the threshold, even though it is not taxed as regular income. This catches many people by surprise. If you have a portfolio of municipal bonds or other tax-exempt investments, that income pushes you closer to or over the threshold.

Roth conversions and withdrawals from traditional IRAs count as income for this purpose, even if you do not owe income tax on the withdrawal itself. This is one reason some people delay large IRA withdrawals or spread them over multiple years.

Withholding taxes from your monthly benefit

If you know your benefits will be taxed, you can ask Social Security to withhold federal income tax from your monthly payment. You do this by filling out Form W-4V and sending it to your local Social Security office or mailing it to the address on the form.

You choose the withholding rate: 7 percent, 10 percent, 12 percent, or 22 percent of your benefit. The money is withheld each month and sent to the IRS. This approach works well if you have little other income and want to avoid a tax bill when you file your return.

Withholding is optional, but it can save you from owing a large amount in April. If you do not withhold and you owe tax, you may also owe a penalty for underpayment of estimated tax, depending on how much you owe.

Paying estimated tax if you have other income

If you have substantial income from work, a pension, or investments, withholding from your Social Security check alone may not cover your total tax bill. In that case, you may need to make quarterly estimated tax payments to the IRS using Form 1040-ES.

Estimated tax is due on April 15, June 15, September 15, and January 15. You calculate what you expect to owe for the year and divide it into four payments. If you do not pay enough through withholding and estimated payments, you will owe the balance when you file your return, plus interest and possibly a penalty.

A tax professional or the IRS website can help you figure out whether you need to make estimated payments. Many people find it simpler to have a larger amount withheld from their Social Security check and adjust it each year based on what they actually owed.

State taxes on Social Security benefits

Most states do not tax Social Security benefits at all. However, a small number do: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont tax benefits under their own rules.

Each state has its own income thresholds and tax rates, which differ from the federal thresholds. If you live in one of these states and your income is above the state threshold, you will owe state tax on a portion of your benefits in addition to any federal tax. Check your state's tax agency website or ask a tax professional about your state's specific rules.

If you move to a different state after you start receiving benefits, your state tax situation may change. Some states that tax benefits offer exemptions for people over a certain age or with income below a certain level, so it is worth checking whether you may have access to for an exemption.

What to do at tax time

Social Security sends you a Form SSA-1099 each January showing the total benefits you received the previous year. You use this form to report your benefits on your federal tax return. If you had taxes withheld, that amount appears on the form as well.

When you file your return, the IRS calculates your combined income and determines how much of your benefits are taxable. If you withheld more than you owed, you get a refund. If you withheld less, you owe the difference.

If you are married and file jointly, both spouses' benefits and income count toward the threshold. If you are married but file separately, the threshold is zero — meaning any Social Security benefits are taxable if you have any other income at all. This is why married couples almost always file jointly if either spouse receives Social Security.

Frequently Asked Questions

Can I avoid paying tax on my Social Security benefits?

You can reduce the amount of tax you owe by lowering your other income. Delaying large IRA withdrawals, timing the sale of investments, or working less in a given year can all keep your combined income below the threshold. However, if your combined income is above the threshold, some portion of your benefits will be taxed — you cannot avoid it entirely.

Does the tax on Social Security benefits count as income for Medicare premiums?

No. Medicare uses your modified adjusted gross income (MAGI) to set your premiums, which is calculated differently than the combined income used for Social Security taxation. However, both calculations include your Social Security benefits, so having benefits taxed does not directly affect your Medicare costs.

What if I did not have enough tax withheld and cannot pay what I owe?

Contact the IRS to discuss a payment plan. You can pay your tax bill in installments over time. The IRS also offers an Offer in Compromise program for people who cannot pay what they owe, though this is rarely granted. A tax professional or the IRS helpline can explain your options.

Do I have to file a tax return if my only income is Social Security?

If Social Security is your only income and it is below a certain amount (which varies by age and filing status), you do not have to file. However, if you have other income or if you had taxes withheld, filing a return may get you a refund. The IRS website has a tool to help you determine whether you must file.

Will my benefits be taxed if I am still working?

Yes. Wages from work count as income toward the combined income threshold. If you are working and receiving Social Security, your combined income is likely to be high enough that some of your benefits are taxed. This is separate from the earnings limit that reduces your benefits if you claim before full retirement age.