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Social Security benefits can offer financial security, but when every dollar counts, it's important to know if all of it is yours to keep—or if some of your payments will be taxed.
An estimated 40% of people who receive these benefits will owe federal income taxes, according to the Social Security Administration (SSA). Not sure where you fall? Here's how to determine whether or not you'll need to pay taxes on your Social Security benefits.
Are Social Security Benefits Taxable?
If you receive Supplemental Security Income (SSI) benefits, these will never be taxable. Also, if your child receives Social Security benefits paid under their Social Security number, it may be taxable to the child rather than you as the parent.
However, you might have to pay taxes on up to 85% of Social Security retirement, survivor or disability benefits depending on your tax filing status and your income. This can increase your overall taxable income and tax bracket.
The SSA defines incomes in a unique way for taxation purposes. To determine income for Social Security tax purposes, if you file taxes as single, you calculate your income by adding half of your annual Social Security benefits to all other income you receive. This includes any wages, pensions, dividends, interest or capital gains. If you file jointly, you add half of your Social Security benefits and half of your spouse's Social Security benefits to all other combined income.
This table illustrates how much of your Social Security benefits may be taxed.
Note: It may be different in certain circumstances (such as if you and your spouse don't live together), so it's best to speak with a tax professional to confirm your tax obligation.
| Social Security Tax Rates by Filing Status | ||
|---|---|---|
| Filing Status | Total Income | Tax Rate |
| Single (or head of household, or qualifying widow/widower) | Less than $25,000 | 0% |
| Between $25,000 and $34,000 | 50% | |
| More than $34,000 | 85% | |
| Joint | Less than $32,000 | 0% |
| Between $32,000 and $44,000 | 50% | |
| More than $44,000 | 85% |
Source: IRS
The IRS has a tool on its website you can use to calculate if your Social Security benefits are taxable.
Paying Taxes on Social Security Benefits
Each year, anyone who receives Social Security benefits will get a benefit statement, also known as Form SSA-1099 or SSA-1042S. These are mailed out, but you can also access them online on the SSA's website. This form indicates how much you received in Social Security benefits in the past year so you can report it on your annual tax return.
If you learn that you will owe taxes on your Social Security benefits, you have a few options for paying it:
Pay a Lump Sum at Tax Time
You always have the ability to pay your taxes on Social Security benefits annually. When your accountant or tax software tabulates everything for your federal (and possibly state) return, you'll find out if you owe money or get a refund. Note that if you don't have enough deductions to cover your Social Security taxes, you may owe a large payment upfront. This might not be affordable for all budgets.
Have Taxes Withheld
If you don't want to risk owing a large amount all at once to cover taxes on your benefits, you can instead opt to have federal taxes withheld from your Social Security benefits. This spreads out the cost throughout the year, which means you'll get less money in benefits each month but also means you won't owe as much come tax time. You have the option to withhold either 7%, 10%, 12% or 22% of each monthly payment for federal taxes. A tax professional can help you determine the best amount to withhold for your situation.
To set up tax withholding, you can call the SSA during business hours at 800-772-1213 and request it. You can also visit your local IRS office or download and submit IRS Form W-4V, called Voluntary Withholding Request, via mail or fax.
Pay Quarterly Estimated Taxes
An in-between option is to make quarterly estimated tax payments. This doesn't spread out the cost as much as having taxes withheld monthly, but it does make it more manageable than paying a lump sum at tax time. To set up quarterly estimated tax payments, visit IRS.gov/payments.
Which States Tax Social Security Benefits?
There aren't many states that impose a tax on Social Security benefits, and it's becoming less common for them to do so. But if you live in one of the following 11 states, you may have to pay state income tax on your benefits in addition to federal taxes:
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
Each state's laws are unique, and taxation on your benefits can vary by income and other factors, so speak with a tax professional to confirm your tax obligation.
How to Minimize Social Security Income Taxes
If you owe taxes on your Social Security, there are some ways to reduce your tax burden or its impacts. They mostly focus on reducing your income, so you'll be taxed less (or not at all) on your Social Security benefits. Some tactics can include:
- Move some retirement funds into Roth IRAs or Roth 401(k)s, or do a Roth conversion. With traditional IRAs and 401(k)s, you have to take required minimum distributions (RMDs) each year starting at age 73, and these are treated as ordinary income for taxes. Roth accounts don't have RMDs, and if you're over age 59½ and have the account for at least five years, earnings aren't subject to taxes.
- Reduce income with gifts. Some of your income-generating assets can be given to your kids or other family members, or even charities.
- Wait to tap your retirement accounts. If possible, wait to start taking out funds from tax-advantaged retirement accounts like 401(k)s and IRAs, since you're not legally required to until you're 73 years old.
- Focus on investments that generate minimal taxable income. For example, avoid purchasing stocks or mutual funds with taxable dividends or distributions.
- Delay claiming Social Security benefits. While not a direct tax strategy, it's another way to reduce your overall tax burden and get a larger monthly payment once benefits begin. This can leave you less reliant on other sources of income once you do start getting Social Security.
The Bottom Line
Taxes are notoriously complicated, and taxes on Social Security benefits are no exception, especially since they vary by state. It can be frustrating to learn that a portion of your benefits are potentially taxable. It's ideal to work with a qualified tax professional, who can help you determine if your benefits are taxable and recommend strategies to lower your tax burden.