After years of working hard and paying into the social security system, it’s finally time to receive your payouts. But are your social security benefits tax-free, or will you owe Uncle Sam a cut?
Social security benefits are taxable in some situations, but it depends on your full financial picture. Read on to learn everything you need to know about social security benefits and your taxes.
Are social security benefits taxed?
Social security benefits are taxable in some situations. Whether you have to pay taxes on a portion of your benefits depends on the following factors:
- The value of your benefits.
- Whether you have any other sources of earned income.
- How much income you’ve earned.
Do you have to pay taxes on social security benefits?
To find out, just follow this simple formula!
If the value of half of your benefits plus all of your other income (including tax-exempt interest, taxable pensions, interest, wages, dividends, and other taxable income) is greater than the designated limit for your filing status, a portion of your benefits will be taxable. If it’s smaller than the base amount, then your benefits are tax-free!
Below, you can find the most current base amounts organized by filing status.
- Single, head of household, qualifying widow(er): $25,000.
- Married filing:
- Jointly: $32,000.
- Separately (and lived apart for the entire year): $25,000.
- Separately (and lived with the spouse during the year): $0.
Note that you should not reduce your other income with any deductions, exemptions, or exclusions (including employer-provided adoption benefits, foreign earned income or housing, interest from qualified U.S. savings bonds, or income earned by bona fide residents of American Samoa or Puerto Rico).
Remember that if you’re filing a joint income tax return, you will need to include your and your spouse’s combined incomes and benefits in the calculation.
How are social security benefits taxed?
How the IRS taxes social security benefits depends on the value of your benefits and other income. Let’s dig a little deeper into what you can expect at each filing status.
If you’re Single or Married Filing Separately (and lived apart all year):
If half your benefits and other income amounts to more than $34,000, then up to 85% of your benefits are taxable. However, if your total is below $34,000, only 50% of your social security benefits are taxable.
If you’re Married Filing Jointly:
If half your benefits and other income amounts to more than $44,000, you’ll also pay taxes on up to 85% of your benefits. Similarly, if your total is less than $44,000, you’ll only pay taxes on up to 50% of your benefits.
If you’re Married Filing Separately (and lived together for any part of the year):
You’ll pay taxes on up to 85% of your benefits, regardless of their value.
Let’s look at an example.
George will use the Single filing status on his tax return. He has a taxable pension worth $20,000, W-2 wages equal to $10,000, and social security benefits that total $4,500. Half of his total benefits ($2,250) plus $30,000 in other income will put him at $32,250. This amount is over the threshold, so George will owe some taxes on his benefits. But because it is less than $34,000, only up to 50% of his benefits will be taxed.
If George only earned his $20,000 pension and $4,500 in benefits, his total would come to $22,250, and he would have no tax liability on his benefits. Further, if his income increased by $5,000 (putting his total at $37,250), up to 85% of his benefits would be taxable.
You can check your Social Security account here. Your account will let you know how much you’ve contributed and estimates for future benefits.
Frequently asked questions about social security benefits and taxes
What do social security benefits include?
Social security benefits include survivor and disability benefits, and the monthly retirement received from the Social Security Administration. They do not include Supplementary Security Income (SSI) payments. Box 5 on Form SSA-1099 will show the total amount of social security benefits you receive in a year.
Do you have to pay taxes on social security benefits?
You may have to pay taxes on social security benefits. Not everyone does. It depends on the amount of your income and benefits.
Are social security benefits taxable after age 66?
Social security benefits can be taxable at any age. Whether they are taxable depends on the total of your benefit amount and your additional income.
How do I avoid taxes on my social security benefits?
To avoid taxes on your social security benefits, the sum of half of your benefits and your other income must stay below the taxable threshold for your filing status.
Will I owe state taxes on my social security benefits?
That depends on your state! Only 13 states tax social security benefits. These include Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.
Where can I find publications to help me calculate taxes on social security benefits?
If you use IRS e-file to prepare and file your tax return, the tax software will figure out your taxable benefits for you. If you file a paper return, you can use the Interactive Tax Assistant (ITA) tool on the IRS website. Additionally, there also is a worksheet in the instructions for Form 1040 or 1040A that you can use to figure your taxable benefits (Social Security Benefits Worksheet found on page 33).
Read more in IRS Publication 915.
Social security benefits and taxes
In most cases, if you don’t receive any income besides your social security benefits during a tax year, your benefits won’t be taxable. However, if you do earn other income, you will likely have to file a return and may owe taxes on your benefits. You can use the resources above to run the numbers and determine your tax liability.
If you want help from a professional who specializes in tax law, review and compare leading tax preparation firms below.
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.