Many retirees wonder if their Social Security benefits are taxed or if they can receive them tax-free. The quick answer is that some Social Security income is taxable, while some is not. However, the exact amount that is taxable depends on your total income and filing status. In this article, we’ll provide an in-depth look at Social Security taxes and when retiree benefits are exempt.
Is all Social Security income taxed?
No, not all Social Security income is taxable. However, a portion of it may be if you have other sources of income above a certain threshold. Here are some key facts:
- Up to 85% of your Social Security benefits may be taxed if your provisional income exceeds the thresholds set by the IRS.
- Provisional income includes your adjusted gross income, non-taxable interest, and half of your Social Security benefits.
- For single filers, if provisional income is between $25,000 and $34,000, up to 50% of benefits may be taxed.
- For joint filers, if provisional income is between $32,000 and $44,000, up to 50% of benefits may be taxed.
- Above those thresholds, up to 85% of benefits may be taxable.
- If your income falls below the thresholds, your Social Security benefits are tax-free.
So in summary, middle-income and higher-income retirees may have to pay taxes on a portion of Social Security income, while lower-income retirees likely pay no taxes on benefits.
Income thresholds for taxing Social Security
As mentioned above, the IRS uses your provisional income to determine whether and how much of your Social Security benefits will be taxed. This includes your adjusted gross income plus nontaxable interest plus half of your Social Security benefits.
Here are the provisional income thresholds to determine the taxable portion of Social Security benefits:
For single filers
| Provisional Income | Taxable Portion of Benefits |
|---|---|
| Under $25,000 | 0% |
| $25,000 – $34,000 | Up to 50% |
| Over $34,000 | Up to 85% |
For joint filers
| Provisional Income | Taxable Portion of Benefits |
|---|---|
| Under $32,000 | 0% |
| $32,000 – $44,000 | Up to 50% |
| Over $44,000 | Up to 85% |
As you can see, single filers with provisional incomes under $25,000 and joint filers under $32,000 can receive Social Security benefits tax-free. Once provisional income exceeds the lower thresholds, up to 50% of benefits become taxable. Above the higher thresholds, up to 85% of benefits may be taxed at your ordinary income tax rate.
Who does not pay taxes on Social Security benefits?
In general, retirees with the lowest incomes do not have to pay federal income taxes on Social Security benefits. This includes:
- Single filers with provisional incomes under $25,000
- Joint filers with provisional incomes under $32,000
- Those who file their taxes as married filing separately and lived apart from their spouse for the whole year
- Low-income seniors who do not file tax returns at all
Retirees who rely almost entirely on Social Security for their income typically don’t meet the minimum thresholds and can receive benefits tax-free.
However, even retirees with very low incomes may still have to pay state taxes on a portion of benefits in some states. For example, 13 states levy state income tax on Social Security income, some with thresholds as low as $10,000 for single filers.
Reasons some Social Security income is taxed
There are a few reasons why Congress enabled taxation of Social Security benefits:
- Raise additional revenue – Taxing a portion of Social Security benefits increases income tax revenue to help fund the federal budget.
- Tax equity – Social Security benefits resemble other taxable income like pensions and annuities.
- Higher incomes – Wealthier retirees rely less on benefits to cover basic needs.
- Save Social Security – Additional revenues help keep the program solvent.
The taxation thresholds have not been adjusted for inflation since they were introduced in 1983. As a result, over time more middle-income retirees have become affected.
How are Social Security benefits calculated into your taxes?
If part of your Social Security income is deemed taxable, calculating how much you actually owe involves a few extra steps:
- Determine your provisional income, adding up AGI, nontaxable interest, and 50% of Social Security benefits.
- Check which income threshold applies based on your filing status.
- Calculate the amount of benefits that will be taxed based on the appropriate percentage.
- Add the taxable portion of benefits to your AGI.
- Report the taxable amount properly on your Form 1040 and other tax schedules.
- Pay income tax at your normal rate on the taxable portion.
Doing the math can be complicated. Many tax software programs can do the Social Security benefit calculations automatically based on income information you provide. Or you can get help from a tax professional.
Strategies to avoid Social Security benefit taxes
If your income exceeds the thresholds and makes a portion of your benefits taxable, you may look for ways to reduce the tax bite:
- Claim benefits later – Delaying Social Security until full retirement age or older reduces taxable benefits.
- Reduce income – Try generating less income from things like IRA withdrawals or freelance work.
- Manage provisional income – Keep provisional income below $25,000/$32,000 by minimizing non-Social Security income sources.
- Invest in tax-free accounts – Earnings from Roth IRAs and municipal bonds don’t count towards provisional income.
- Donate to charity – You can take a tax deduction for charitable contributions to reduce AGI.
The right strategy depends on your overall financial situation. A financial advisor or tax professional can help you identify the best options.
Are Social Security benefits taxed after you die?
Social Security taxation rules also apply to some forms of Social Security income that are paid after your death:
- Lump sum death benefit – Not taxable income.
- Survivor benefits – Taxation depends on the survivor’s income, using the same thresholds.
A surviving spouse who collects survivor benefits may have to pay taxes on a portion if their provisional income exceeds the thresholds. Other survivors like children and dependent parents may owe no taxes on survivor benefits.
Do you have to pay Social Security tax on your benefits after you retire?
No, once you start receiving Social Security retirement benefits, you no longer pay Social Security taxes on that income. The 6.2% Social Security tax is only levied on earned income up to the annual maximum threshold ($147,000 in 2022).
Benefits do not count as earned income for purposes of Social Security tax. Retirees do not pay into the Social Security system on benefits collected.
However, you may still have to pay Medicare tax on your Social Security income. The 1.45% Medicare tax has no income limit. So retirees with substantial income from sources besides Social Security may see this tax taken out of benefit payments.
Is Social Security considered taxable income?
Social Security retirement, disability, and survivor benefits may be partially taxable or fully tax-exempt depending on your total income.
Here are some key points on how Social Security income is treated:
- Up to 85% of benefits may be taxable if income thresholds are exceeded
- No income minimum for taxation – even $1 over the thresholds triggers taxation
- Taxed at your normal federal income tax rate
- 13 states also tax Social Security income, with varying rules
- Taxable portion must be reported properly on Form 1040
In general, people with substantial income from sources besides Social Security are most likely to pay taxes on benefits. But the exact determination depends on your specific situation.
Do I have to file taxes if I only receive Social Security?
Many Americans who live solely on Social Security benefits are not required to file federal income tax returns each year. Reasons why you may not need to file include:
- Your gross income excluding Social Security is below $25,000 if single or $32,000 if married filing jointly.
- You are single with no dependents and your income is only from Social Security.
- Your benefits are not taxable because your total income is below the thresholds.
- You do not have any self-employment income.
However, even if you are not mandated to file, doing so may be financially wise if you are eligible for deductions, credits, or rebates. Many seniors can get a refund by filing.
You also must continue filing returns to receive benefits from programs like the earned income tax credit (EITC) or the premium tax credit for health insurance.
Are pension payments taxed like Social Security?
Yes, in many ways pension income is taxed similarly to Social Security:
- Pension benefits are taxed as ordinary income.
- No FICA taxes are withheld from private or government pensions.
- Taxable amount depends on which contributions were taxed upfront.
- Income thresholds can trigger taxation of a portion of benefits.
- Retirees must properly report taxable pension income on Form 1040.
However, there are no set income thresholds that automatically trigger taxation of a percentage of your pension like there are for Social Security. Pension taxation depends solely on whether contributions were taxed when made during your working years.
Many retirees receive both Social Security and a pension. You must calculate the taxable amounts of each benefit correctly based on the different rules.
Are Social Security disability benefits taxed?
Yes, federal income tax rules for Social Security disability insurance (SSDI) benefits are the same as for Social Security retirement benefits:
- Up to 85% of benefits may be taxable if income limits are exceeded
- Provisional income determines what amount is taxed
- Taxed using normal federal income tax rates
Recipients of SSDI must pay taxes on benefits if total income surpasses the thresholds based on filing status. The same strategies for reducing taxation of retirement benefits can apply for SSDI income, like delaying benefit claims.
SSDI recipients also receive an annual SSA-1099 form to file with tax returns showing gross benefits for the year.
Can you deduct Social Security benefits on your tax return?
There is no specific tax deduction for Social Security benefits. You cannot deduct the full amount of benefits received in a tax year.
However, the taxable portion of benefits can be deducted indirectly through the standard deduction or itemized deductions.
For example, a married couple with $20,000 in taxable Social Security income and $15,000 in other deductions would reduce their taxable income by $27,000 ($20,000 + $15,000 – $8,000 standard deduction).
Some specific ways Social Security benefits can lead to deductions:
- Increase adjusted gross income to allow larger standard deduction
- Boost itemized medical deductions above the AGI threshold
- Increase charitable giving deductions
- Raise total deductions to qualify for the standard deduction if not claimed previously
So while Social Security income itself is not deductible, strategic use of other deductions can reduce the tax bite on benefits.
Is Social Security considered earned income?
No, Social Security benefits are not classified as earned income by the IRS. The term “earned income” refers specifically to income received from active work, such as:
- Wages from a job
- Net self-employment earnings
- Strike benefits
- Disability benefits received prior to retirement age
Meanwhile, “unearned income” refers to passive income from other sources like investments, pensions, annuities, capital gains, interest income, and Social Security retirement benefits.
The IRS makes this distinction because some tax rules apply specifically to earned income. For example, only earned income is subject to Social Security payroll taxes and counts toward Earned Income Tax Credit eligibility.
Classifying Social Security benefits as unearned income excludes them from these special IRS provisions for earned income. But it does not change how benefits are taxed – they are still potentially subject to federal income taxes like other retirement income.
Do you pay state tax on Social Security benefits?
It depends on your state of residency. The federal government taxes Social Security benefits based on income thresholds, but states can set their own rules.
Here is how state income tax applies to Social Security benefits:
- 37 states do not tax Social Security benefits at all
- 13 states tax a portion of benefits, each with different income thresholds
- 9 of those 13 states offer partial Social Security tax exemptions
- No states tax Social Security benefits fully without exemptions
For example, California exempts single filers with total income below $25,000 and joint filers below $32,000. Connecticut taxes up to 25% of benefits but exempts income below certain limits.
So retirees planning a move in retirement should research the Social Security tax rules in states they are considering. State benefit taxation can significantly impact your overall taxes owed.
Do I pay Social Security taxes when I work while collecting benefits?
Yes, you must continue paying 6.2% Social Security payroll tax when you have earned income while also collecting Social Security retirement benefits. However, there are a couple special rules:
- Only pay Social Security tax on income up to annual maximum ($147,000 in 2022)
- Benefits themselves are not taxed for Social Security
- No additional benefits accrued from work after claiming
So if you have wage or self-employment income above the annual limit subject to Social Security tax, you do not pay the 6.2% rate on additional earnings. You also stop accruing additional benefits, since you are already claiming.
Medicare tax of 1.45% on earned income has no limit – that applies to all work earnings when receiving Social Security.
Can Social Security benefits be garnished for back taxes?
Yes, the IRS can levy Social Security benefits to pay certain outstanding tax debts:
- 15% federal payment levy for delinquent federal income taxes
- Up to 15% state payment levy in some states
- Applies to retirement, survivors, and disability benefits
- Refunds from overpaid benefits can also be seized
However, the IRS will not garnish more than 15% of your total monthly Social Security benefit amount. And levies are prohibited if paying taxes would leave you unable to pay basic living expenses.
Certain other debts like child support arrears and federal student loan defaults can also potentially trigger garnishment of benefits. To avoid levies, try to settle back taxes owing through payment plans or settlement offers.
Conclusion
While a portion of Social Security retirement benefits may be federally taxable based on your total income, not all seniors end up owing taxes on what they receive. Your specific situation – including filing status, where you live, and types of other income – determines your tax liability. With proper planning through retirement income management and state residency decisions, some retirees can minimize or eliminate taxes on benefits. But taxes should be one factor to weigh when deciding when to claim and how much to rely on Social Security in your overall financial strategy.