Is Social Security Taxable?

While the majority of people may have to pay taxes on their Social Security income, it is not required of everyone. The taxability of Social Security income depends upon several factors such as an individual’s overall total income and their filing status. The more substantial the additional income that an individual receives might be, along with their Social Security benefits, the more likely they are required to pay taxes on their Social Security income.

As you work, Social Security taxes are taken out of your paycheck so you can get a monthly benefit in retirement. That Social Security benefits income, which can be received monthly or in lump-sum, replaces part of your income to help pay monthly expenses as you get older.

To supplement your income in addition to your benefits, you may also receive income from other sources such as wages, interest, self-employment and dividends. This total income combined is what determines if an individual has to pay taxes on their Social Security income. Everyone’s financial situation is different, so taxability varies.

However, most state governments don’t tax these benefits. Of the 50 states, currently, only 12 states levy a tax on some or all of their residents’ Social Security benefits.

As of tax year 2022, Social Security income is not taxable for taxpayers in Colorado aged 65 and over. But, for Colorado residents aged 55 to 64, a portion of Social Security benefits above $20,000 is taxable.

The Internal Revenue Service (IRS) sets the rules on how much of your Social Security benefits are taxable. There is a set base amount that your total combined income must meet.

To determine if your benefits are taxable, take the total of one-half of your benefits and add it to all your adjusted gross income, including tax-exempt interest.

This total is compared to the base amount for your filing status, which determines the percentage of your Social Security benefits that are taxable.

According to the Social Security Administration, if you are single, the head of household or a qualifying surviving spouse, your Social Security benefits are generally not taxable if your total combined income is below a base amount of $25,000.

However, if your total combined income is between $25,000 to $34,000, then your Social Security benefits might be taxed up to 50%. If it is above $34,000, up to 85% of your Social Security benefits may be taxable.

If you are married and filing jointly, your Social Security benefits are generally not taxable if you and your spouse’s total combined income is below a base amount of $32,000.

However, if you and your spouse’s combined total income is between $32,000 to $44,000, then your Social Security benefits might be taxed up to 50%. If it is above $44,000, up to 85% of your Social Security benefits may be taxable.

To calculate the taxes on your Social Security income, you must first figure out your adjusted gross income. Your adjusted gross income includes the total of your other income sources (wages, pensions, interest, ordinary dividends and capital gain distributions).

Next, you must take 50% of your Social Security benefits, plus tax-exempt interest, and add it to your adjusted gross income. Then subtract the base amount for your filing status according to the IRS income threshold rules from your total combined income.

For example, let’s say you file as an individual, have $25,000 in other income, $3,000 in tax-exempt interest, and received a total of $10,000 in Social Security benefits during the year. Your total combined income is $33,000 (other income plus tax-exempt interest plus half of your Social Security benefits).

Since this combined income falls between $25,000 to $35,000, up to 50% of your Social Security benefits would be taxable. The taxable amount is calculated as the difference between the combined income and the base amount multiplied by the percentage taxed ($33,000 – $25,000 = $8,000; $8,000 x 50% = $4,000).

IRS Publication 915 provides more information on figuring out the taxable portion of your Social Security benefits.

Social Security benefits are not the only benefits subject to taxation, as there are different types subject to the same rules — such as disability, spousal and survivor benefits. When it pertains to you and your family, knowing which benefits are taxable can save you from surprises when it’s time to file your taxes.

Social Security disability benefits are paid to those who’ve worked and paid into the Social Security fund but are unable to work due to becoming sick or injured. These benefits are also taxable like regular Social Security benefits if your total combined income is above the threshold set by the IRS.

Supplemental Security Income (SSI) benefits, however, are paid to adults and children with a disability or blindness who have limited income and resources. These benefits are not taxable.

Spousal benefits are Social Security benefits paid to the spouses of workers once the worker files for their benefits, which are based on the worker’s contributions to Social Security insurance. A spouse’s benefits are also subject to taxes the same as regular Social Security benefits — they are also factored into total combined income.

Survivor benefits are paid to the surviving spouse, surviving divorced spouse, dependent parent or children. Generally, the benefits are taxable only to the extent that the beneficiaries’ total income exceeds the IRS threshold.

One thing to note is that if the children receive Social Security survivor benefit payments, this income does not count toward the parents’ total income. In most circumstances, a child will not have enough income sources for Social Security benefits to be taxed.

At the beginning of each year, typically in January, you will receive a Social Security Benefit Statement (Form SSA-1099) from the Social Security Administration. This includes the total amount of benefits you received in the prior year.

When filing your income taxes, you will use this Benefit Statement to report the Social Security income you received to determine if your benefits are subject to taxes. The net amount of your Social Security benefits is in box 5 on Form SSA-1099, which you will report on line 6a of your Form 1040 (U.S. Individual Income Tax Return) or Form 1040-SR (U.S. Tax Return for Seniors).

To reduce the amount of your Social Security benefit that is subject to taxation, you need to reduce your combined income. Sometimes, this may mean shifting tax liability from one year to another. However, don’t just look at the tax effect on your Social Security benefits in a single year. Consider the impact on your total tax liability throughout retirement.