Not many forms of income escape taxation by the Internal Revenue Service, and Social Security benefits are no exception. Most forms of Social Security income are taxable, but you might dodge the bullet based on your overall income and you won’t pay tax on all your benefits in any case.
Taxable Social Security Benefits
The Social Security Administration pays out a variety of benefit types. Taxpayers might receive retirement benefits, spousal benefits, disability benefits, survivor benefits, or Supplemental Security Income (SSI) benefits. SSI isn’t taxable, but the other benefits are not tax-free.
They’re only subject to income tax, however – not to Medicare and Social Security taxes.
Social Security Benefits and Other Income
The key to whether your benefits are taxable and how much of that income is taxable depends on your other sources of income. The IRS provides a relatively simple equation to help you figure it out. The tricky part is that virtually all the income that comes into your household must be included, including dividends, interest, capital gains, pensions, retirement income, wages, salaries and self-employment income. But you’re not going to use the entirety of all these earnings and incomes in your calculation.
Taxation of benefits is based on your adjusted gross income or AGI, not your gross or overall income, plus any tax-exempt interest income you earned during the course of the tax year. You'll have to start your tax return to determine your AGI. It appears on line 11 of your 2021 Form 1040 tax return.
Arriving at this number involves completing Schedule 1 to list any types of income that don’t have their own dedicated spot on the Form 1040. You can also subtract any adjustments to income that you qualify for on Schedule 1, and this reduces your AGI.
How to Calculate the Taxable Amount
Add up all your other sources of income, then add that total to one-half of your Social Security benefits to arrive at what the IRS calls your “combined income.” Let’s say you're single and you collected $17,000 in Social Security benefits. One-half of that is $8,500. You earned $1,500 in interest from investments. This brings you up to $10,000 in combined income.
This number falls below $25,000 so you wouldn’t have to pay income tax on any of your Social Security benefits. But you would have to pay tax on 50 percent of your benefits if your combined income fell between $25,000 and $34,000. This increases to 85 percent if your combined income worked out to more than $34,000.
The numbers shift a bit for married couples who file joint returns with their spouses. The 50 percent threshold falls between $32,000 and $44,000 in this case. The 85 percent threshold kicks in at $44,001. But an unfortunate rule applies to this filing status: You must use your joint AGI, composed of both of your earnings, even if only one spouse is collecting Social Security benefits.
This rule wouldn’t apply if you lived apart from your spouse throughout the entirety of the tax year and you file a separate married return. In this case, you would use the thresholds for the single filing status. But you would have to pay tax on all your benefits if you did live together and you file a separate married return. That $25,000 or $32,000 threshold drops to $0 in this case.
This Isn’t Your Tax Rate
This doesn’t mean you’ll pay a 50 or 85 percent tax rate on your Social Security benefits. It just means that this portion of your benefits is subject to income tax. You would owe tax on $14,450 of your Social Security benefits if they totaled $17,000 for the year and you fell into the 85 percent category, or you'd owe on $8,500 of your benefits if you fell into the 50 percent category.
The Social Security Administration will send you a Form SSA-1099 sometime in January, telling you how much in the way of benefits you were paid in the previous year.
When Your Child Receives Benefits
The same basic equation applies if your child receives survivor or dependent Social Security benefits. That money would be taxable according to the same income limits that apply to adults if the child received any other income during the tax year, such as if a teenager held down a job.
On the bright side, you do not have to include your child's benefits with yours when you’re calculating your own tax liability, or your benefits with theirs. You should calculate each of your tax obligations separately.
Lump Sum Payments of Back Benefits
It occasionally happens that a taxpayer receives a lump sum payment of back benefits for previous years. The IRS indicates that you should not amend your previous years' tax returns if this happens. You have two options if this should occur:
The entirety of what you received – back benefits plus the current year’s benefits – can be calculated in the equation to determine if your benefits are taxable in the year you received the money.
You can elect to use your AGI for the earlier, applicable tax year if that will result in a lesser tax obligation. This can be a complicated option, but the IRS provides a worksheet in Publication 915 which you can access online. You might also want to touch base with a tax professional to make sure you get it right.
You have some payment options if it turns out that your Social Security benefits are either 50 or 85 percent taxable. You don’t have to wait until you file your tax return in April, leaving you scrambling to pay additional taxes that you didn’t know you were going to owe.
You can get ahead of the equation by immediately reaching out to the Social Security Administration and arranging to have taxes withheld from your benefits, just as you would have them withheld if you were still working. You can also remit estimated tax payments as the year goes on. Run the numbers so you have a rough idea of what you’ll most likely owe, then send the money to the IRS in advance.
States That Tax Social Security
Unfortunately, there’s a chance that you’ll have to pay a state tax on your Social Security benefits as well, in addition to a federal income tax to the IRS.
According to the AARP, 12 states tax Social Security:
- New Mexico
- Rhode Island
- West Virginia
North Dakota used to tax Social Security benefits as well, but the state eliminated this rule in 2021. Colorado, Nebraska and West Virginia are in the process of phasing out their taxes on benefits for most residents as well, so keep an eye on the situation. Benefits you received in 2021 will be taxable, but that may not be the case in 2022.
Utah follows the same calculation equation as the IRS, and the income thresholds for Connecticut, Minnesota and Kansas are significantly higher than those at the federal level. Nebraska has rules in place to use only your AGI without adding in half your benefits.
Each state has its own rules, so check with your Department of Revenue to find out how it taxes this income.
- Social Security Administration: Retirement Benefits
- AARP: How Is Social Security Taxed?
- IRS: Don’t Forget, Social Security Benefits May Be Taxable
- IRS: Frequently Asked Questions / Social Security Income
- Tax Foundation: Does Your State Tax Social Security Benefits?
- NOLO: Taxes on Social Security Benefits
- IRS: Form 1040 U.S. Individual Income Tax Return 2020
- IRS: Schedule 1 Additional Income and Adjustments to Income 2020
- IRS: Publication 915
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.