Many people are surprised to learn that Social Security benefits can be taxed. Whether yours are depends on how much other income you have. If Social Security is your only income, you probably will not owe federal tax on it. If you also have a pension, withdrawals from retirement accounts or work income, part of your benefits may be taxable.
Step 1: Work out your combined income
The IRS uses a measure called combined income, sometimes called provisional income. It equals:
- Your adjusted gross income (not counting Social Security),
- plus any tax-exempt interest, such as interest from municipal bonds,
- plus half of your Social Security benefits for the year.
Your SSA-1099 form, mailed each January, shows the total benefits you received.
Step 2: Compare it with the thresholds
| Filing status | Up to 50% of benefits may be taxable | Up to 85% of benefits may be taxable |
|---|---|---|
| Single, head of household | Combined income of $25,000 to $34,000 | Combined income above $34,000 |
| Married filing jointly | Combined income of $32,000 to $44,000 | Combined income above $44,000 |
If your combined income is below the lower number, none of your benefits are taxable. Married people who file separately and lived with their spouse during the year will usually pay tax on up to 85% of their benefits.
These thresholds are set by law and are not adjusted for inflation, which is why more retirees pay tax on benefits each year.
What "taxable" means
If 50% or 85% of your benefits are taxable, that portion is added to your other income and taxed at your regular rate. It does not mean you pay a 50% or 85% tax. At most 85% of your benefits are counted as taxable income, so at least 15% is always tax-free.
An example
A single person receives $24,000 a year in Social Security and $20,000 from a pension. Combined income is $20,000 plus half of $24,000 ($12,000), or $32,000. That falls between $25,000 and $34,000, so up to half of the amount above $25,000 counts as taxable. In this case, $3,500 of benefits would be added to taxable income. Tax software or the worksheet in IRS Publication 915 does this math for you.
Having tax withheld
To avoid a large bill in April, you can ask Social Security to withhold federal income tax from each payment. Use IRS Form W-4V and choose 7%, 10%, 12% or 22%. Return the form to Social Security, not the IRS. Some people make quarterly estimated tax payments instead.
State taxes
Most states do not tax Social Security benefits. A small number do, often with exemptions for people below certain incomes. Check your state revenue department's website, or ask a tax preparer, to see how your state handles benefits.
Free tax help
The IRS Tax Counseling for the Elderly program and the Volunteer Income Tax Assistance program offer free tax preparation, with a focus on people 60 and older. Find a site through the IRS website or by calling 1-800-906-9887. AARP Foundation Tax-Aide also offers free help at many libraries and community centers.
