What social security is taxable?

If you have several sources of income, including retirement plan withdrawals, pensions, and railroad benefits, you may be required to pay taxes on your Social Security benefits. Generally, Social Security is taxed at the federal level, and some states may also levy income taxes on Social Security income. If you receive Social Security, or you plan to start receiving monthly checks, you should understand how these benefits are taxed.

You will pay taxes on your Social Security income if your total income is above $25,000 per year if you are a single filer, or $32,000 if you are married and filing jointly. If Social Security is your sole source of retirement income, you likely won’t owe any taxes on your benefits. However, if you receive income from investments, retirement plan withdrawals, pension, part-time work, and other sources, you will likely pay taxes on your Social Security benefits.

When Social Security benefits are taxed?

You will pay income taxes on Social Security based on your income level and filing status. For 2023, you will pay income taxes on your Social Security benefits if your total income exceeds $25,000 for an individual or $32,000 for a married couple filing jointly.

If Social Security income is your sole source of retirement income, you will likely not pay any taxes on your benefits. The average Social Security benefit for 2023 is $1,827 for retired workers and $2,972 for married couples, which is below the threshold for federal income taxes.

However, if you are married and filing jointly, your combined income and Social Security benefits are used to determine how much taxes you will pay. You should compare the combined income with the base amounts for federal income taxes to know how much of your Social Security income will be taxed.

If the total income is below the base amount, you won’t owe income taxes on your Social Security benefits. If your total income falls between the base amount and the maximum amount, you will pay income taxes on up to 50% of your Social Security benefits. If your income exceeds the maximum amount, your Social Security benefits are taxable up to 85%.

How much Social Security is taxable?

To determine how much Social Security benefit is taxable, you must first calculate the adjusted gross income (AGI), which is the total taxable income. This includes any income from part-time work, distributions from 401(k) and IRAs, and taxable income from investments such as stocks and interest earnings. Then, add tax-exempt interest and half of your Social Security benefits.

This formula is expressed as follows:

Combined income= Adjusted Gross Income + Non-taxable interest+ ½ of Social Security benefits

If your combined income is below the income threshold, you won't owe taxes on your Social Security benefits. However, if the combined income is above the income threshold, you will pay federal income taxes on 50% to 85% of your Social Security benefits.

For 2023, the income thresholds are as follows:

Single filers- if the combined income ranges from $25,000 to $34,000, you will pay income taxes on up to 50% of the Social Security benefit. If the combined income exceeds $34,000, you will owe income taxes on up to 85% of your benefits.

Married couples filing jointly- if the combined income ranges from $32,000 to $44,000, you will owe benefits on up to 50% of your benefits. If the combined income exceeds $44,000, you will owe income taxes on up to 85% of your benefits.

Are spousal, survivor, disability, and SSI benefits taxable?

The amount of taxes you pay on these benefits depends on your income level and the type of benefit.

Spousal benefits

If you are receiving spousal benefits on your spouse’s or ex-spouse’s record, your benefits will be taxed at the same rate as regular Social Security benefits. If you are a single filer, and your income is above $25,000 per year, you will pay taxes on up to 50% of your spousal benefits. If the total income is more than $34,000, you will owe income taxes on up to 85% of your benefits.

Survivor benefits

If you receive survivor benefits based on a deceased beneficiary’s record, you may owe income taxes depending on your total income. If you are a minor child, and you don’t have other income, you will likely not pay income taxes on the benefits you receive. However, if you receive survivor benefits as a surviving spouse or parent, and you have other incomes, you will pay income taxes if the combined income exceeds certain income thresholds.

Disability benefits

If you receive disability benefits, you will be subject to the same tax rules as the regular Social Security benefits. As a single filer, you will pay income taxes if your income is above $25,000, while married couples filing jointly will pay income taxes if their total income is above $32,000.

SSI benefits

SSI is a needs-based program, and you can qualify to receive this income if you are disabled, blind, or age 65 or older. SSI benefits are not considered an income for tax purposes, and hence not taxable.

Paying taxes on Social Security

The Social Security Administration (SSA) sends Form SSA-1099 (Social Security benefits statement) to beneficiaries in January each year. This statement details the benefits received for the previous year, and you can use it to determine the amount of federal and state income taxes you owe on your benefits. If you owe Social Security taxes, you can make tax payments on a quarterly basis or opt to have taxes withheld from your Social Security benefits.

State taxes on Social Security Income

Different states have different rules on how Social Security benefits are taxed. Some states exempt Social Security benefits from state income taxes, while some states tax Social Security benefits based on income or other criteria.

Some of the states that tax Social Security income include Colorado, Minnesota, Montana, Missouri, New Mexico, Vermont, West Virginia, etc. Most of the time, low-income retired workers may not pay any state income taxes on Social Security benefits.

Additionally, some states do not have state income taxes, or exempt Social Security incomes from state income taxes. Some of these states include Alabama, Arizona, California, Florida, Delaware, Kentucky, Illinois, Louisiana, Maine, Ohio, North Carolina, Texas, Washington, etc.

If you plan to start collecting Social Security benefits, you can contact your state tax agency to know how Social Security benefits are taxed.

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