7 Things You Should Know About Taxes on Social Security

Andy Markowitz,

AARP

En español

Published January 18, 2023

/ Updated June 21, 2024

One of the enduring myths about Social Security is that benefit payments are not subject to federal income taxes. This was true from the program’s inception in the 1930s until Congress overhauled its financing in the 1980s, but for 40 years now, some portion of Social Security income has been taxable for some beneficiaries.

Whether you are among them depends on your income. If you live on Social Security alone, it’s unlikely you bring in enough money for your benefits to be taxed. If you have other income sources, such as work or retirement account withdrawals, chances are higher that you will owe taxes on some of your benefits.

Here are seven things Social Security recipients, present and future, should know about taxation of benefits.

1. Income matters — age doesn’t.

Contrary to another common misperception, you don’t stop paying taxes on your Social Security when you reach a certain age. Income, and income alone, dictates whether you owe federal taxes on your benefits.

To make that determination, the IRS adds up your adjusted gross income (AGI), your tax-exempt interest income and half of your Social Security benefits for the year. If this figure, sometimes called your “combined” or “provisional” income, exceeds $25,000 for an individual taxpayer or $32,000 for a married couple, a portion of your benefits is taxable.

Those minimum thresholds haven’t changed since taxation of benefits was introduced. As incomes have risen in the decades since, so has the share of Social Security recipients whose benefits are taxed — from less than 10 percent in 1984 to nearly half in recent years, according to Social Security Administration (SSA) data.

2. You won’t be taxed on all your benefits.

Under an overhaul of Social Security’s financing passed by Congress and signed by President Ronald Reagan in 1983, up to 50 percent of benefit income could be taxed if the recipient’s combined income exceeded the limits noted above. Budget legislation enacted a decade later under President Bill Clinton added a second, higher income threshold and made up to 85 percent of benefits taxable above it.

Here’s how it stands:

Combined income under $25,000 (single) or $32,000 (couple): Benefits are not taxed.
Combined income of $25,000 to $34,000 (single) or $32,000 to $44,000 (couple): Up to 50 percent of benefits can be taxed.
Combined income above $34,000 (single) or $44,000 (couple): Up to 85 percent of benefits can be taxed.

The “up to” is important. Simply landing in one of those higher income tiers doesn’t mean your benefits will be taxed to the maximum level — it’s more like a sliding scale. The IRS has an online tool you can use to figure out how much of your Social Security income is taxable.

Benefits are taxed the same way as other income — you pay the same rate on them as you would on, say, your work earnings.

3. You can have federal taxes withheld from benefits.

If you expect to owe taxes on your benefits, you can effectively prepay part of the bill by having taxes withheld from your monthly Social Security payments.

You can opt in for withholding as part of your application for Social Security or do so later by filling out IRS Form W-4V and submitting it to a Social Security office. In either case, you can choose to have 7 percent, 10 percent, 12 percent or 22 percent of your benefits applied to your next IRS bill.

4. It isn’t just retirement benefits.

The taxation rules apply to all forms of benefits paid out of Social Security’s trust funds — retirement benefits, survivor benefits and Social Security Disability Insurance (SSDI). Whichever type of Social Security benefit you’re getting, you could owe taxes on it, depending on your overall income.

They do not apply to Supplemental Security Income (SSI), a separate safety net benefit that is administered by the SSA but paid out of general U.S. Treasury funds. SSI benefits support people with very low incomes and limited financial assets who are 65 or older, blind or have a disability, and those payments are exempt from taxation.

5. Taxes on benefits help pay benefits.

By law, federal income taxes collected on benefits go into the government’s Social Security and Medicare trust funds, meaning they contribute to future benefit payments.

Income taxes on benefits paid out in 2022 added $48.6 billion to Social Security’s coffers, accounting for about 4 percent of the program’s revenue, the vast majority of which comes from payroll taxes levied separately on most U.S. workers’ earnings.

6. Some states tax Social Security, too.

Most states do not tax Social Security income. But if you live in Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont or West Virginia, some portion of your 2024 benefits may be subject to state income taxes, under widely varying rules and formulas. That money goes into the states’ general funds.

Most of these states use different criteria than the federal government for taxing Social Security payments, setting higher income thresholds, offering various deductions or otherwise limiting taxation of benefits in ways that exempt many beneficiaries.

In Vermont, for example, Social Security income is fully deductible for residents with AGIs below $50,000 for an individual and $65,000 for a couple. Colorado residents ages 65 and over can fully deduct their benefits. Missouri and Nebraska have ended taxation of Social Security income, starting with the 2024 tax year; so has Kansas, pending Gov. Laura Kelly's expected signature on tax legislation passed in June 2024.

AARP has supported legislative efforts in multiple states to reduce or eliminate taxation of benefits. To find out how benefits and other forms of retirement income are taxed in your state, check with its tax or revenue office.

7. COLA could have an impact

Income from Social Security benefits figures into the tax calculation, and that income has gotten a big bump in recent years due to inflation. The 2023 cost-of-living adjustment (COLA) of 8.7 percent, the largest since 1981, increased the average retired worker’s Social Security income by about $1,760 for the year. The 2024 COLA is boosting benefits another 3.2 percent.

That helps retirees keep up with rising prices. But while benefits are adjusted for inflation, the income tiers for taxation of benefits are not. The COLA can push some Social Security recipients over the threshold for owing taxes on their benefits and potentially increase the bill for those who were already over the threshold, especially when inflation is running hot.

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