Is Social Security Taxable?

Roughly one-third of Americans have to pay income taxes on their Social Security benefits. Here's how to know if this includes you.

Aug 18, 2014 at 2:15PM

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Is Social Security taxable? This may strike you as an odd question, given that your benefits are the product of years of prior taxes. Despite this, according to the Social Security Administration, "about one-third of people who get Social Security have to pay income taxes on their benefits."

This begs two questions. First, why are some people's benefits taxed while others are not? And second, assuming you're included in this minority, how much are you likely to be on the hook for?

When are Social Security benefits taxable?

Determining whether your Social Security benefits are taxable is a straightforward process. This is because it all turns on your so-called "combined income."

In short, your combined income is your adjusted gross income (i.e., your gross earnings reduced by a handful of items, including business expenses, health savings account deductions, etc.), plus nontaxable interest plus one-half of your Social Security benefits.

An easier, albeit shorthand, way to think about this is simply as your total earnings plus half your benefits. Importantly, because the calculation focuses on earnings, it excludes withdrawals from a retirement account such as an IRA or 401(k).

Once this is calculated, you'll then be able to determine whether your benefits will be taxed. Here's how it breaks down:

Scenario

Single Taxpayer

Joint Taxpayers

Social Security benefits not taxed if combined income is less than...

$25,000

$32,000

As much as 50% of benefits taxed if combined income is between...

$25,000 and $34,000

$32,000 and $44,000

As much as 85% of benefits taxed if combined income is more than...

$34,000

$44,000

Source: Social Security Administration.

If Social Security benefits are taxable, what tax rate applies?

Assuming that at least a portion of your benefits are taxable, then that portion will be treated as "ordinary income" for federal income tax purposes. This means that your exact tax liability will be a function of the tax bracket(s) you're otherwise in.

For the current year, here's how the tax tables break down:

Tax Rate

Single

Married Filing Jointly or Qualifying Widow

Married Filing Separately

Head of Household

10%

$9,075 or less

$18,150 or less

$9,075 or less

$12,950 or less

15%

$9,076 to $36,900

$18,151 to $73,800

$9,076 to $36,900

$12,951 to $49,400

25%

$36,901 to $89,350

$73,801 to $148,850

$36,901 to $74,425

$49,401 to $127,550

28%

$89,351 to $186,350

$148,851 to $226,850

$74,426 to $113,425

$127,551 to $206,600

33%

$186,351 to $405,100

$226,851 to $405,100

$113,426 to $202,550

$206,601 to $405,100

35%

$405,101 to $406,750

$405,101 to $457,600

$202,551 to $228,800

$405,101 to $432,200

39.6%

> $406,751

> $457,601

> $228,801

> $432,201

Source: Internal Revenue Service.

The bottom line on Social Security and income taxes

The answer to the question of whether or not your Social Security benefits will be taxed is: It depends.

If you earn a substantial income in retirement, then you may have to re-remit as much as 39.6% of 85% of your benefits to the government. If, on the other hand, you rely exclusively on Social Security, then you'll likely be able to keep it all.

How to get even more income during retirement
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

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