The Social Security Administration estimates 58% of recipients will owe taxes on their Social Security benefits. You’ll likely have to pay taxes if you receive income outside of Social Security from pensions, annuities, capital gains, interest, or 401(k) distributions.
While your benefits are taxed at whatever income bracket you fall into, how much of your benefits are taxed is calculated differently.
- Social Security benefits are considered income for the legal recipient of the benefit.
- Whether or not you need to pay taxes on your Social Security benefits depends on your combined annual income.
- You can pay quarterly estimates or have the amount deducted from your benefits throughout the year.
- While 38 states don’t tax Social Security benefits, the remaining twelve have different tax treatments.
How do you know if you owe taxes on your Social Security?
Regardless of your income, you will never be taxed on 100% of your Social Security. The taxed percentage (0-85%) depends on your combined annual income.
|Combined Annual Income =
Adjusted Gross Income + Nontaxable Interest + ½ Social Security benefits
You are probably familiar with income tax brackets or tax thresholds. Your combined income and filing status determine similar brackets for taxing Social Security benefits.
You do not need to pay taxes on your Social Security benefits if:
- You file individually and your combined annual income is less than $25,000.
- You file jointly with your spouse; your combined annual income is less than $32,000.
You may need to pay taxes on up to 50% of your Social Security benefits if:
- You file individually, and your combined annual income is between $25,000 and $34,000.
- You file jointly with your spouse, and your combined annual income is between $32,000 and $44,000.
You may need to pay taxes on up to 85% of your Social Security benefits if:
- You file individually, and your combined income is more than $34,000.
- You file jointly with your spouse, and your combined annual income is more than $44,000.
If you are married but filing separately, the Social Security Administration estimates that you’ll likely have to pay to owe taxes on your Social Security benefits.
How do I calculate my combined income?
Your combined annual income is calculated using half of your Social Security benefits, adjusted gross income, and any nontaxable interest.
Every January, you’ll receive a summary of your Social Security benefits on Form SSA-1099. You’ll use half of this number in the combined annual income equation. If you received $5,000, you’d use $2,500.
Your adjusted gross income (AGI) calculation is the total income you report, subject to income tax—your earnings, dividends, and taxable interest—minus specific deductions you’re eligible to take. This does not include standard deductions. You can find your AGI on line 11 of your 1040 form.
Nontaxable interest is any interest earned from municipal bonds issued by states, cities, counties, and the District of Columbia.
Let’s put it all together in the combined income equation for a single filer.
$20,000 (AGI) + $100 (nontaxable interest) + $2,500 (half of Social Security benefits) = $22,600
In this example, the filer doesn’t owe taxes on their Social Security benefits.
Is math not your forte? Contact a professional to walk you through it, especially if calculating your AGI is complicated.
How do I pay taxes on my Social Security benefits?
There are several ways to pay.
- You can ask the SSA to withhold taxes from your Social Security benefits.
- You can pay estimated quarterly taxes to the IRS. They use 1040-ES to help you determine your estimated tax amount and report your benefits.
How do states tax Social Security benefits?
Everything you’ve read thus far covers federal tax, but there’s good news for state-level taxes. As of the 2022 tax year, 38 states do not tax Social Security.
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- South Dakota
- Washington, D.C.
- West Virginia
Of the 12 states that tax Social Security, each handles it a bit differently. Still, they all include provisions to reduce your tax obligation by either age or income.
Coloradans 65 and older can fully deduct Social Security benefits from their state income. Those ages 55 to 64 receiving Social Security can deduct up to $20,000 in retirement income, including Social Security payments.
Depending on their AGI, state residents can deduct most or all of their benefit income. Single filers with an AGI less than $75,000 and married couples below $100,000 do not pay state taxes on their benefits. Filers with an AGI above those amounts will only pay taxes on 25% of their benefits.
Kansas filers, regardless of filing status, with an AGI less than $75,000 are fully exempt from paying state taxes on Social Security. Beyond that threshold, benefits are taxed at the same rate as other income.
Minnesota follows the federal rules for determining the amount of Social Security benefits subject to income tax. Still, some tax relief is called the Social Security Subtraction. Single filers can exclude up to $4,260 of their benefits from their income. For joint filers, the cap is $5,450. The exclusion phases out for higher incomes.
Benefits are fully deductible for residents ages 62 and older with an AGI of less than $85,000 (single) or $100,000 (married, filing jointly). If you earn more, you may still be eligible for a partial deduction.
Montana follows the same thresholds as the federal government, but they calculate taxable income differently. The state tax form includes a worksheet for calculating the difference.
Currently, Nebraska does not tax Social Security benefits for couples filing jointly with an AGI below $61,760 and for singles with an AGI below $45,790. Above those levels, a portion of Social Security income is taxable, but the share is set to decline to zero by the 2025 tax year.
Social Security income is fully deductible for residents with AGIs below $100,000 for an individual and $150,000 for a couple filing jointly.
The state does not tax benefits for people who have reached full retirement age (between 66 and 67, depending on the year of birth) and have an AGI below $95,800 (single) or $119,750 (filing jointly).
Utah uses the federal formula to calculate how much Social Security income is taxable at the state tax rate. Still, the state offers a full or partial credit on those taxable benefits.
Couples and heads of households reporting income of $62,000 or less and singles making $37,000 or less qualify for a full tax credit on their benefit income.
Single filers with an AGI of $50,000 or less qualify for a total exemption from paying state taxes on their benefits, with partial exemptions for incomes between $50,000 and $60,000.
For married couples filing jointly, the total exemption applies to incomes of $65,000 or less, with partial exemptions for incomes between $65,000 and $75,000.
Benefits are fully taxed at the state rate for incomes above those thresholds.
West Virginia taxes benefits according to the federal model for residents with an AGI above $50,000 (single) and $100,000 (filing jointly). Those with AGIs below those levels can fully deduct their benefits.
And there you have it. A complete overview of the tax requirements for your Social Security Benefits. It’s a lot to track, so if you need help determining your AGI or tax status, contact a professional.
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