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Tax Brackets and Social Security
As a taxpayer, total income determines your highest tax bracket. Social Security benefits are included in that total income, as reported on Form 1040. Your taxable income is your gross income minus all allowable deductions.
A portion of your Social Security benefits may be subject to federal taxation. In fact, up to 85% of your benefits may be taxable if your total income meets a certain threshold amount noted by the Internal Revenue Service (IRS).
Key Takeaways
- Your taxable income equals your gross income less all the deductions that you are allowed.
- Up to 85% of Social Security benefits can be taxed depending on your total annual income.
- Thresholds for federal income tax brackets, as well as Social Security income limits, are published by the Internal Revenue Service (IRS) each year.
- IRS Publication 915 details the process of calculating income tax due on your benefits.
- Several states also tax Social Security income.
What Portion of Social Security Is Subject to Income Tax?
The formula for determining whether your Social Security benefits are taxable is:
½ of Social Security benefits + all other income, including tax-exempt interest
If the result is from $25,000 to $34,000, those filing as single may have to pay federal income tax on up to 50% of benefits. If your income is greater than $34,000, you may pay taxes on up to 85% of your benefits.
For married couples filing jointly, if your income is $32,000 to $44,000, you may pay federal income tax on up to 50% of your benefits. If your income is greater than $44,000, you may pay taxes on up to 85% of your benefits.
Married couples who live together but file separately will most likely pay taxes on the total amount of their benefits.
You can review IRS Publication 915 for the process of calculating this amount. As mentioned above, you must include your Social Security benefits on your Form 1040 tax return as ordinary income after calculating the appropriate amount.
An individual whose only source of income is their Social Security benefit usually doesn’t have to pay federal income tax on that amount.
What Is Ordinary Income?
Ordinary income represents most of your household’s taxable income from sources such as wages, self-employment, pensions, Social Security benefits, rents, royalties, and interest.
Other forms of household income such as capital gains and qualified dividends are not considered ordinary income. They’re taxed at different rates.
Important
Income from your traditional 401(k) isn’t considered taxable income as long as it stays in the account. Once it’s withdrawn, typically it is taxed as ordinary income.
How Is Ordinary Income Taxed?
All sources of ordinary income are added together and then all allowed deductions are subtracted from this total. What remains is subject to tax as determined by federal tax brackets and IRS tax tables. These are adjusted every year to account for inflation.
States That Tax Social Security Benefits
Most states do not tax Social Security benefits. However, the nine states below do:
- Colorado: Excludes some pension and annuity payments from income taxes, including Social Security benefits. Residents who are at least age 55 as of the last day of the tax year but under age 65 can exclude the smaller of $20,000 or the amount of the pension payment. Those who are 65 or older can subtract the full amount of Social Security benefits included in their federal taxable income if they are over $24,000.
- Connecticut: Exempts Social Security benefits from taxation if you’re a single filer with an adjusted gross income (AGI) of less than $75,000. If you’re married and filing jointly with an AGI of less than $100,000, benefits are not taxed. If your income is greater than these thresholds, your benefits are subject to tax of no more than 25%.
- Minnesota: Individual taxpayers with AGIs below a certain threshold do not have to pay state taxes on their Social Security income.
- Montana: Taxes Social Security benefits according to the same thresholds used by the federal government.
- New Mexico: The Social Security benefits of recipients with AGIs of less than $100,000 (for individuals), $150,000 (for couples filing jointly), and $75,000 (for married couples filing separately) are not taxed by the state.
- Rhode Island: Does not tax benefits for retirees who have reached full retirement age and have an AGI below a certain threshold. This limit changes slightly each year due to inflation.
- Utah: Offers a non-refundable tax credit of up to $450 against retirement income for those born on or before Dec. 31, 1952. The credit phases out for incomes above certain thresholds.
- Vermont: Offers a full exemption for single filers with AGIs up to $50,000 and for married couples filing jointly with AGIs up to $65,000.
- West Virginia: Recipients of Social Security payments can deduct 35% of their benefits amount from their taxable income.
How Much of My Social Security Income Is Taxable?
You may be required to pay federal income tax on up to 50% of your Social Security benefits if you’re filing as an individual and half of your Social Security benefit amount plus other income (including tax exempt interest) is between $25,000 and $34,000. You may be liable for income tax up to 85% of your benefits if the total is more than $34,000.
At What Age Is Social Security No Longer Taxable?
There’s no age at which Social Security is no longer taxable. Social Security will always be taxable depending on the total taxable income you earn in retirement.
Does Everyone Pay the Same Rate for Social Security Tax?
Yes, everyone pays the same rate. The rate is 12.4%, half of which is paid by the employee (6.2%) and half by the employer (6.2%). You must pay the full 12.4% if you’re self-employed. All taxpayers pay the Social Security tax on incomes up to a certain threshold. Income over these thresholds is not taxed for Social Security.
The Bottom Line
You may be subject to a federal tax of 50% or 85% on your Social Security benefits, depending on your overall income. A portion of your Social Security benefit is combined with your other taxable income to determine if your Social Security benefits are taxable.
