If you’re thinking you won’t have to pay taxes when you retire because you have paid taxes on Social Security your entire working life, then think again.
More than half of those who receive Social Security payments owe taxes on their earnings during the tax period. Here’s how the Internal Revenue Service (IRS) taxes Social Security and how you might reduce your tax burden.
The IRS’s Approach to Social Security Taxation
Despite the widespread perception that you stop paying taxes after reaching a particular age, your Social Security benefits are taxed for the rest of your life. The amount of taxes you pay on those benefits is determined by your other earnings that year. This includes wages, self-employment income, investment income, and other taxable income.
Up to 85% of your total Social Security earnings may be taxed at your regular income tax rate. However, 44% of people will not owe any income taxes on their Social Security benefits.
Those who earn little or no money outside of Social Security payments are unlikely to pay any taxes on their benefits. Furthermore, persons who receive only Social Security benefits may not be obligated to file a tax return at all.
You’ll need your filing status and combined income to figure out how much you might owe. The combined income calculation is a little complicated, but you can figure it out by adding one-half of your Social Security payments to your adjusted gross income and any non-taxable interest you’ve earned this year.
Use this table to see how much of your benefits will be taxed at your regular income tax rate once you’ve calculated your combined income.
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Filing Status
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Up to 50% of your benefit is taxable
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Up to 85% of your benefit is taxable
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Single or Head of Household
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If your combined income (Benefits + other taxable income) totals between $25,000 and $34,000.
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If your combined income exceeds $34,000.
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Married Couple Filing Jointly
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If your joint combined income ranges between $32,000 and $44,000.
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If your joint combined income exceeds $44,000.
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Note: If your combined income is at least $0, up to 85% of your Social Security payments are taxable if you are married and filing separately.
What States Have Social Security Taxes?
Your Social Security benefits may be taxed in some states (so you may have to pay both state and federal taxes on your benefits). Thirteen states currently tax part or all of the benefits you receive.
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State
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Taxability
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Colorado
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Some or all of the benefits will be taxed. Those who are 55 years or older are free from paying taxes.
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Connecticut
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- Social Security benefits are taxable up to 50%.
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Kansas
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- Benefits are only taxable if your adjusted gross income (AGI) is more than $75,000, and they are only taxable to the federal government.
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Minnesota
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- Depending on your income level, some or all benefits may be taxable.
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Missouri
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- If your AGI exceeds $100,000 (for married couples) ($85,000 for single filers) and if you are under 62 years old and not disabled, a portion of your income may be taxable.
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Montana
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- Part of your Social Security earnings may be taxed here; the state recommends that people fill out a worksheet to determine how much of their benefits would be taxed.
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Nebraska
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- Only those with an annual income of more than $44,460 for single filers and $59,100 for married couples are subject to the tax. If approved by the state assembly, the state will exempt Social Security benefits from taxation beginning in 2030.
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New Mexico
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- Only those with an AGI of more than $25,000 for single filers ($32,000 for married couples) are taxed. However, those 65 and older with an AGI of less than single filers ($28,500 for $51,000) can deduct $8,000 from their income.
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North Dakota
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- When it comes to determining whether Social Security benefits are taxed, North Dakota uses the same criteria as the federal government.
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Rhode Island
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- If your AGI is over $107,950 for married filers ($86,350 for single filers) and you have not reached full federal retirement age (FRA), you will be liable for taxes.
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Utah
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- Benefits are only taxable if your combined income exceeds $50,000 ($35,000 for single taxpayers).
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Vermont
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Your Social Security benefits are taxable based on your filing status and AGI.
A total exemption may be available to single filers with an AGI of less than $45,000 ($60,000 for married taxpayers).
A partial exemption is available to married taxpayers with an AGI of $60,001 to $69,999 ($45,001 to $54,999 for single filers).
- The state recommends that taxpayers fill out a worksheet to figure out how much of their benefits will be taxed.
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West Virginia
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- Those earning $100,000 or more ($50,000 if single) are at least partially taxed, but those earning less than that are tax-free. Social Security benefits will be tax-free beginning in 2022.
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How to Declare Social Security Benefits
Each January, you’ll receive a Form SSA-1099 from the Social Security Administration (SSA), which details the total benefits you received the previous year as well as the total amount you must submit to the IRS on your federal tax return.
If you lose your form, create a free online account with the SSA and download a copy.
You will report the amount in Box 5 of Form SSA-1099 and the total amount on line 6a of your Form 1040, U.S. Individual Income Tax Return or Form-1040-SR, U.S. Tax Return for Seniors. Your other earnings determine the taxable income during the year, which you should report on Form 1040-SR or line 6b of Form 1040.
Keep in mind that the amount of your benefits that are taxed is determined by your combined income and filing status. This worksheet can be used to calculate the taxable amount of Social Security benefits.
How to Pay Social Security Taxes
You have a few options for paying taxes on your Social Security income if you owe them. To begin, you can pay them on Tax Day, just like you did when you were younger. If you expect to owe taxes, you may want to consider paying estimated taxes quarterly.
Alternatively, if you anticipate that your Social Security benefits will be taxable, you may opt to withhold federal taxes from your monthly payments, just as you did when you worked.
Fill out Form W-4V, Voluntary Withholding Request, and mail it to your local Social Security office. You can choose to have 7%, 10%, 12 percent, or 22 percent deducted from your payments.
How Can You Lower Your Social Security Taxes?
If you think you’ll owe taxes on your Social Security income, there are a few things you may do to reduce your tax liability:
Reduce business profits: If you own a company, you can lower your tax bill by taking advantage of any available business tax write-offs.
Limit retirement withdrawals: You may wish to consider lowering your retirement income withdrawals to reduce your tax burden, but you should consider the required minimum distribution (RMD) laws. You may potentially increase your tax burden if you don’t take out at least a minimum from your most taxable retirement funds after age 72.
Sell capital assets strategically: If you possess capital assets like stocks, bonds, or real estate, you should consult a tax professional to determine the ideal moment to sell them. Any capital assets that are sold at a loss will lower your overall income. Capital gains taxes may apply to any assets sold at a profit, depending on how long you held them.
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Bio:
I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.
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