Does My Pension Count as Income for Social Security?

Individuals nearing retirement often consider how pension income affects their Social Security benefits. A common concern is whether a pension reduces Social Security payments or makes them taxable. The relationship depends on the pension’s origin and an individual’s financial situation. Understanding these nuances is important for retirement planning.

Pension Income and Social Security Benefit Reductions

Historically, certain pension income could reduce Social Security benefits, particularly from employment where Social Security taxes were not paid (non-covered employment). The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) addressed these situations. The Social Security Fairness Act, signed into law on January 5, 2025, officially repealed both WEP and GPO. This repeal is retroactive, applying to benefits dating back to January 2024, meaning these provisions no longer affect current or future benefit calculations.

The Windfall Elimination Provision (WEP) was a modified benefit formula that reduced Social Security benefits for individuals who received a pension from non-covered employment and also had enough earnings in covered employment to qualify for Social Security. This provision aimed to prevent an unintended advantage for workers who spent only a portion of their careers in Social Security-covered jobs. WEP impacted the calculation of a worker’s primary insurance amount (PIA), which is the base amount of their Social Security benefit.

WEP primarily affected those who worked for state or local governments that did not participate in Social Security, such as some teachers, police officers, and firefighters, or individuals with certain foreign pensions. While WEP could significantly reduce a worker’s own Social Security retirement or disability benefits, it generally did not apply if an individual had 30 or more years of substantial earnings under Social Security. With its repeal, individuals previously faced these reductions will now receive their full Social Security benefits without such offsets, and eligible individuals may receive retroactive payments.

The Government Pension Offset (GPO) was a provision that reduced Social Security spousal or survivor benefits for individuals who received a pension from non-covered government employment. Its purpose was to ensure that individuals receiving non-covered government pensions did not receive a more favorable outcome than those who had their own Social Security benefits offset by their earnings. It applied when a person was entitled to a pension from a job where Social Security taxes were not paid and was also eligible for Social Security benefits as a spouse or survivor of a covered worker. Under the GPO, the Social Security spousal or survivor benefit was reduced by two-thirds of the amount of the non-covered government pension. With the recent repeal of GPO, individuals previously affected by this provision will now receive their full Social Security spousal or survivor benefits without reduction.

Pension Income and Social Security Benefit Taxation

While WEP and GPO previously impacted the amount of Social Security benefits, pension income can still affect the taxation of Social Security benefits. The federal government may tax a portion of Social Security benefits based on an individual’s total income, including pension income.

The key factor in determining this taxability is a calculation known as “provisional income,” also referred to as “combined income.” Provisional income is calculated by taking your Adjusted Gross Income (AGI), adding any tax-exempt interest income, and then adding one-half of your Social Security benefits. Your AGI includes most taxable income sources, such as wages, dividends, capital gains, and withdrawals from traditional retirement accounts. Therefore, most taxable pension income contributes to your AGI and, consequently, to your provisional income.

Once provisional income is determined, it is compared against specific income thresholds to ascertain what percentage of your Social Security benefits may be subject to federal income tax. For single filers, if provisional income is below $25,000, none of the Social Security benefits are taxable. If provisional income falls between $25,000 and $34,000, up to 50% of the Social Security benefits may be taxable. For provisional income exceeding $34,000, up to 85% of the Social Security benefits may become taxable.

For those married filing jointly, the thresholds are different. If their combined provisional income is below $32,000, none of their Social Security benefits are taxable. If provisional income is between $32,000 and $44,000, up to 50% of their Social Security benefits may be taxable. If their provisional income is above $44,000, up to 85% of their Social Security benefits may be subject to taxation. Pension income, by increasing your AGI and provisional income, can push you into a bracket where a larger percentage of your Social Security benefits are subject to federal income tax.