How Much of Your Social Security Income Is Taxable?

A portion of your Social Security benefits may be subject to federal income tax, depending on your total income. The taxability relies on a specific calculation that combines your benefits with other income sources you receive throughout the year. Understanding this calculation is important for determining how much of your benefit will be taxed.

Calculating Your Combined Income

To determine if your Social Security benefits are taxable, you must first calculate your “combined income.” The formula is your Adjusted Gross Income (AGI) plus any nontaxable interest, plus one-half of your total Social Security benefits for the year.

Your AGI includes income from nearly all sources. It includes wages from a job, earnings from self-employment, and distributions from retirement accounts like traditional IRAs or 401(k)s. It also includes investment returns such as interest, dividends, and capital gains. You can find your AGI on your completed Form 1040.

Nontaxable interest, which includes interest from municipal bonds, must be added back even though it is not subject to federal income tax. You also add one-half of your Social Security benefits. You can find the total annual amount of benefits you received in Box 5 of your Form SSA-1099, which the Social Security Administration sends each January.

For example, consider a married couple filing jointly with an AGI of $50,000, no nontaxable interest, and annual Social Security benefits of $30,000. Their combined income would be calculated as $50,000 (AGI) + $0 (nontaxable interest) + $15,000 (one-half of their Social Security benefits). This results in a combined income of $65,000.

Applying the Federal Tax Thresholds

Once you have calculated your combined income, you can apply the federal tax thresholds to determine what percentage of your Social Security benefits is subject to income tax. These thresholds are set by the IRS and vary based on your tax filing status. The system is tiered, meaning that as your income increases, a higher percentage of your benefits may become taxable, up to a maximum of 85%.

For individuals filing as single, head of household, or qualifying widow(er), a combined income between $25,000 and $34,000 means up to 50% of your Social Security benefits may be taxable. If your combined income exceeds $34,000, up to 85% of your benefits may become taxable. It is important to note that these income thresholds are not adjusted for inflation.

For couples who are married and file a joint tax return, a combined income between $32,000 and $44,000 can result in up to 50% of their Social Security benefits being taxable. If their combined income surpasses $44,000, up to 85% of their benefits may be subject to federal income tax.

The taxable amount is not simply 50% or 85% of your benefits. It is the lesser of two amounts: either the stated percentage (50% or 85%) of your benefits, or that same percentage applied to the amount of combined income that is over the threshold. For instance, a single filer with $20,000 in benefits and a combined income of $26,000 would compare 50% of their benefits ($10,000) with 50% of their income over the $25,000 threshold (50% of $1,000, which is $500). In this case, only $500 of their benefits would be taxable.

The rules are less favorable for those who are married and file separately, if they lived with their spouse at any point during the year. 85% of their Social Security benefits will be taxable, regardless of their combined income level. This regulation is designed to prevent couples from filing separately simply to stay under the joint income thresholds.

State Income Tax on Social Security

In addition to federal taxes, your state may impose its own income tax on Social Security benefits. State-level taxation rules vary widely and are entirely separate from the federal calculations.

Many states do not tax Social Security benefits. Some states have no personal income tax, while others have an income tax but provide a full exemption for all Social Security income, regardless of a taxpayer’s income level.

A smaller number of states do tax Social Security benefits. These states establish their own income thresholds and exemption amounts, which do not mirror the federal rules. For example, a state might allow a full or partial deduction of Social Security income for taxpayers below a certain AGI, with the deduction phasing out as income rises. Because these rules can change, consult your state’s department of revenue for the most current information.

Tax Reporting and Withholding Options

The total benefits you received are reported on Line 6a of Form 1040. The taxable portion is reported on Line 6b. This taxable amount is then added to your other income to calculate your AGI for the year.

You have two methods for paying the income tax owed on your benefits. The first option is to make quarterly estimated tax payments to the IRS. This approach is common for those with income from sources without automatic withholding, like self-employment. These payments are due in April, June, September, and January.

A more direct method is to request voluntary tax withholding from your Social Security benefits. You can set this up by completing Form W-4V, Voluntary Withholding Request, and submitting it to the Social Security Administration. On this form, you can choose to have one of the following percentages of your monthly benefit withheld for federal taxes:

• The 7% rate
• The 10% rate
• The 12% rate
• The 22% rate