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Is Social Security Income Taxable?

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Many retirees rely on their Social Security income to support their lifestyle. But many find themselves wondering whether those benefits will be taxable. The answer isn’t exactly a simple one — some of your Social Security income could be taxable, but not all of it.

Whether your benefits are taxable depends on your annual income. Keep reading to learn how much of your Social Security income will be taxable, how to file taxes for your Social Security income, states that tax Social Security benefits, and more.

Calculating Your Social Security Income Tax

To figure out whether you have to pay federal income tax on your Social Security benefits, you must determine the total amount of your combined income. This is calculated by adding your nontaxable interest and half of your Social Security benefits to your adjusted gross income (or AGI). Here’s the formula:

AGI + nontaxable interest + ½ of Social Security benefits = Combined income

If you’re single and your combined income is between $25,000 and $34,000 a year — or if you’re married and file jointly and your combined income is between $32,000 and $44,000 a year — up to 50% of your Social Security benefits will be taxable.

Meanwhile, if you’re single and your combined income is more than $34,000 a year — or if you’re married and file jointly and your combined income is more than $44,000 a year — up to 85% of your Social Security benefits will be taxable. No more than 85% of Social Security benefits are ever taxable, regardless of the amount of your earned income.

Filing Status
Income
Social Security Income Subject to Taxes

 

Single, Head of Household, Married Filing Separately

< $25,000
0%

$25,000 – $34,000
Up to 50%

$34,000 <
Up to 85%

 

Married Filing Jointly

< $32,000
0%

$32,000 – $44,000
Up to 50%

$44,000 <
Up to 85%

How to File Social Security Income on Your Federal Taxes

The process of reporting your Social Security income on your taxes isn’t all that different from reporting any other type of income. First, if you received Social Security income in a given year, you’ll receive Form SSA-1099, the Social Security Benefit Statement. In Box 5 of that form, you’ll see your net Social Security benefits for the year, whether they were retirement benefits, survivor benefits, or disability benefits.

When it’s time to report your Social Security income, you’ll complete Form 1040, the U.S. Individual Income Tax Return or Form 1040-SR, the U.S. Tax Return for Seniors. You’ll report your total retirement benefits on line 6a of this form.

In addition to reporting your entire Social Security income, you’ll also report the taxable portion of your benefits. In line 6b, you’ll report the amount of your benefits you’ll pay taxes on. You can use the formula above to determine the taxable portion of your benefits.

Impact on Roth IRAs

If you have other income to report in addition to your Social Security income, it may be coming from a retirement account such as a 401(k) plan or individual retirement account (IRA). Any income you get from your 401(k) or a traditional IRA will count toward your combined income for the year, meaning it could result in you paying additional taxes on your Social Security benefits.

However, distributions you get from a Roth IRA won’t count toward your combined income, meaning it won’t result in taxation of your Social Security benefits.

Not only do withdrawals from a Roth IRA not count toward your combined income for the purpose of Social Security benefits, but those withdrawals themselves also aren’t taxed. When you contribute to a Roth IRA, you do so with after-tax money. Because you’ve already paid taxes on those funds, you’ll never pay taxes on them again, including during retirement.

If you’ve already been contributing to a Roth IRA, then you’ll already be able to enjoy these perks during retirement. Even if you haven’t already been contributing to a Roth account, you can convert your traditional IRA funds to a Roth IRA.

It’s worth noting that while a Roth IRA conversion will help you avoid paying taxes on your Social Security income, it won’t help you avoid taxation at all. Because you’re moving money from a pre-tax to an after-tax account, a Roth conversion will require that you pay income taxes on the full amount you convert.

Another benefit of having your money in a Roth IRA rather than a traditional account is you won’t be subject to required minimum distributions. As a result, you can leave the money in your account as long as you want. On the other hand, 401(k)s and traditional IRAs require distributions starting at age 72, meaning you’re forced to have additional income, even if you don’t need it.

State Taxes on Social Security Benefits

Depending on where you live, you might also have to pay state income tax in addition to federal income tax on your Social Security benefits. The following 13 states assess varying levels of state income tax on Social Security:

Colorado
Connecticut
Kansas
Minnesota
Missouri
Montana
Nebraska
New Mexico
Rhode Island
North Dakota
Vermont
Utah
West Virginia

Taxation on your Social Security benefits depends on the state in which you live. For example, Minnesota and Utah tax Social Security income in the same way as the federal government, meaning you could pay taxes on between 0% and 85% of your benefits. Other states offer additional exemptions or deductions based on your income or age, meaning you could pay even less in taxes.

Note: West Virginia is phasing out state taxation of Social Security benefits starting in 2021.

Tips for Saving on Taxes In Retirement

Planning ahead can help you minimize the amount of income tax you must pay on Social Security benefits.

For example, you can try to maximize the amount of taxable income you receive in the years before you start tapping benefits by withdrawing funds from tax-sheltered retirement accounts like IRAs and 401ks. Additionally, as we discussed, contributing to a Roth IRA can help reduce your tax burden during retirement.

Some retirees also choose to live in tax-friendly states during retirement. While this isn’t a feasible or desirable option for everyone, it’s one that could reduce your tax burden. Many states don’t tax Social Security income. In fact, some states have no income taxes at all, which could help you save even more money. Read more on the best U.S. states to retire in 2022.

Next Steps

It’s never too early to start thinking about your retirement plan. The Personal Capital Retirement Planner can help you figure out whether you’re on track for retirement and how much you should save per month to reach your retirement goals.

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