You spend your working life paying taxes. When you finally retire, can you avoid the tax bill?
Unfortunately, for more than half of Americans receiving benefits from Social Security, they still owe taxes on that income during Tax Day.
This article discusses the basics of social security tax and calculating your social security income tax and other special benefit income tax.
Understanding Social Security
Social security is a program paying monthly benefits to surviving children and spouses, retirees, and people with disabilities.
The money from Social Security and Medicare comes from the tax that every working American pays for. It’s a 15.3% tax for the self-employed (covers both the employer and employee portions) and a 7.65% tax on every employee paycheck.
This means that as workers pay tax to fund the Social Security program, other people collect a monthly check from these taxes. Therefore, you shouldn’t rely on your Social Security alone and make sure to invest or save money to ensure a comfortable living during your retirement years.
Is Social Security Taxable?
So, are Social Security benefits taxable? The short answer is yes. Those benefit checks are often taxed as income; thus, some of the money returns to the federal government.
The long answer is that the portion of benefits that are taxed will depend on the filing status and the provisional income of the individual receiving the benefit.
Hence, you shouldn’t rely on your Social Security alone and make sure to invest or save money on banks to ensure a comfortable living during your retirement years.
When Does Social Security Become Taxable?
There are two steps in determining whether your benefits are taxable and at what rate.
First, you need to calculate your total income. The formula is as follows:
Provisional Income = Adjusted Gross Income + Nontaxable Interest + Half Of Your Yearly Social Security Benefit
Now, if you are married and filing together with your spouse, your combined social security benefits and incomes are used to calculate your total income.
Second, use the table below and compare that total with the base amounts for your filing status and see how much of your Social Security benefit is taxable, if any.
| Provisional Income For Single, Qualifying Widow(er), Head of Household, Married but Separate Filer | Provisional Income For Married, Joint Filer | Social Security Income Tax |
| Below USD$25,000 | Below USD$32,000 | Non-taxable |
| USD$25,000–34,000 | USD$32,000–44,000 | Up to 50% taxable at filer’s marginal tax rate |
| Over USD$34,000 | Over USD$44,000 | Up to 85% taxable at filer’s marginal tax rate |
Note that married couples living together with separately filed taxes during the tax year are taxed on up to 85% of their Social Security income regardless of their income level.
Are All Kinds of Social Security Benefits Taxable?
No, not all social security income is taxable. Here’s a look at each special Social Security benefit:
- Spousal Benefit
If you don’t have a social income of your own but collect a spousal benefit based on your partner’s benefits, the rules are the same. If your benefit is above USD$25,000, then you’ll pay taxes of up to 50% of the income amount and up to 85% if your benefit goes above USD$34,000.
- Disability Benefits
A disability benefit follows the same rules as regular Social Security retiree taxable income. If your gross income is above a certain level, your benefit will be taxable with the current threshold at USD$32,000 for a couple of joint filing and USD$25,000 for an individual.
- Survivor Benefits
Benefits paid to survivorship kids are rarely taxed because only a few kids have their income on their own that reaches a taxable range. The guardians or parents who receive the Social Security survivor benefits don’t have to report them as part of their income.
- SSI Benefits
Short for Supplemental Security Income, SSI benefits are not taxable. Likewise, it’s not Social Security and is a needs-based program for adults and children with disabilities, blindness, or those aged 65 and older.
Are There Any States That Tax Social Security?
Yes, there are. Some states can also tax your Social Security income. This means that you may pay federal and state taxes on your income. Currently, there are 13 states that tax all or some of the benefits you receive. These are as follows:
- Minnesota
- North Dakota
- West Virginia
- Vermont
- Kansas
- Montana
- Nebraska
- Missouri
- Colorado
- Utah
- New Mexico
- Rhode Island
- Connecticut
Each state has its own requirements and conditions on the taxable amount on your Social Security. So, make sure to check with your local Social Security office to determine if your income is also state taxable.
That said, the first four states follow the same taxation guidelines as the federal government. The other nine states follow the federal rules but do offer exemptions or deductions based on your income or age. This means that you may not pay tax on the full taxable amount.
The remaining 37 states, including Washington, don’t tax Social Security benefits.
Reporting Social Security Benefits On Your Federal Taxes
Every January, you’ll receive a benefit statement or Social Security 1099, also called SSA-1099. This form shows the total benefits you received from the previous year, including survivor’s, disability, and retirement income, and the total amount that you need to report to the Internal Revenue Service (IRS) for your federal tax return.
In the fifth box of SSA-1099, you’ll write this amount as well as the total amount from line 6a of the US Individual Income Tax Return Form (Form 1040) or the US Tax Return for Seniors (Form 1040-SR). The amount considered as taxable income will depend on other incomes you earned during the year, which you should write on line 6b of any of the two forms.
Keep in mind that the taxable amount of your Social Security income is based on your combined income and filing status. Fortunately, the IRS provides a worksheet to help calculate these.
Conclusion
There you have it! As you can see, your Social Security income is indeed taxable. Thus, instead of focusing on when you can start taking your benefits, you should determine whether your income will be taxable.
