How is Social Security Taxed?
Written by True Tamplin, BSc, CEPF®
Updated on June 21, 2021
Social Security Taxes
When Social Security benefits were first introduced, they were exempt from taxation at all levels.
But Congress eventually passed laws that make this form of income taxable under certain conditions.
But many people are still able to receive their Social Security income without having to actually pay taxes on it.
The determining factor is your level of income.
Individual Social Security Tax
If you are single, then there are a couple of income thresholds that determine how much of your Social Security is taxable.
If your income is at least $25,000 a year, then up to 50% of your benefits may be taxable.
If your income is greater than $34,000 a year, then up to 85% of your income may be taxed.
If you are married filing jointly and your income is at least $32,000, then up to 50% of your income may be taxable.
If your income is greater than $44,000, then up to 85% of your Social Security benefits may be taxed.
Social Security Income Tax
Social Security benefits are taxed as ordinary income, which means that they are taxed at the taxpayer’s top marginal tax rate.
Furthermore, the IRS uses a number called your Modified Adjusted Gross Income (MAGI) to determine your level of income for this calculation.
MAGI equals your adjusted gross income plus any tax-free interest income you earned plus half of your Social Security benefit.
Social Security is also taxed at the state level by some states.
If you live in Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, North Dakota, Vermont, Utah or West Virginia, contact your state tax agency for details on how benefits are taxed (West Virginia is phasing out their taxation of the benefit for the 2021 tax year).
Social Security Benefits with Children
It should also be noted that if you have a child who is receiving survivor or dependent Social Security benefits, then that money does not count toward your taxable income for the purpose of the tax calculation described above.
That money is only taxable if the child has enough income (from Social Security and all other taxable sources) to require him or her to file their own tax return.
Social Security Tax Requirements
If you do end up owing tax on your Social Security benefits, then you can either file quarterly estimated payments to cover this or ask the Social Security Administration to withhold taxes from your benefits each month (The vast majority of filers choose the second option).
The majority of Social Security recipients are ultimately required to pay taxes on their Social Security benefits, because most retirees today also receive income from other sources, such as a part-time job or distributions from a pension or other retirement plan.
But those for whom Social Security is the only source of income usually don’t have to pay taxes on it.
Consult your financial advisor for more information on the taxation of Social Security benefits and how this can affect you.