When most people hear the phrase "Social Security taxes," they probably think of the payroll taxes that workers pay to fund the program. But there are a lot of seniors out there who could tell you that's not the only type of Social Security tax there is.
The federal government also taxes the checks of beneficiaries with incomes over certain amounts. And if you received Social Security benefits in 2022, there's a chance you could be one of them. Here's what you need to know.
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How the federal government taxes Social Security benefits
The federal government looks at your tax filing status and your provisional income when determining whether your Social Security benefits are subject to being taxed. Your provisional income is defined as the total of:
- Your adjusted gross income (AGI);
- Any nontaxable interest, which you could have if you own municipal bonds;
- Half your annual Social Security benefit.
So, for example, a single adult with an AGI of $35,000, no nontaxable interest, and a $20,000 annual Social Security benefit would have a provisional income of $45,000. The following table shows how much of your Social Security benefits the government could tax based on your provisional income and filing status:
|
Percentage of Social Security Benefits Subject to Tax |
Single Filers |
Married Filers |
|---|---|---|
|
0% |
Provisional incomes under $25,000 |
Provisional incomes under $32,000 |
|
Up to 50% |
Provisional incomes between $25,000 and $34,000 |
Provisional incomes between $32,000 and $44,000 |
|
Up to 85% |
Provisional incomes greater than $34,000 |
Provisional incomes greater than $44,000 |
Data source: Social Security Administration.
To be clear, the categories above only indicate what portion of your benefits is taxable, not how much you'll pay in taxes. Falling into the 85% category doesn't mean you'll owe 85% of your benefit in taxes. It just means the government will tax that portion of your benefits at your normal income tax rates. Marginal income tax rates vary from 10% to 37%, but most people fall closer to the bottom end of the range.
The IRS has a calculator to help you determine whether any of your Social Security benefits are taxable. To use it, you select the tax year, your marital and tax filing status, and enter the details about your income and the Social Security benefits you've received.
Some states tax Social Security benefits too
Residents of the following states could also owe state taxes on their Social Security benefits:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
Each state has its own rules for determining which seniors' benefits are taxable. Generally, those with higher incomes or high annual Social Security benefits are more likely to have to pay these taxes. Check with your state department of taxation or reach out to a tax professional familiar with the laws in your state to learn whether you could owe these taxes as well.
Keep this in the back of your mind
Even if you don't owe any taxes on your Social Security benefits for 2022, you might in future years. The size of the average benefit check keeps climbing, in part due to the annual cost-of-living adjustments (COLAs) that help Social Security keep up with inflation. But the thresholds for benefit taxation have remained the same for decades.
As such, your provisional income could eventually climb into the range where your benefits are taxable -- so stay aware of this possibility. You may be able to reduce the likelihood of owing taxes by making more withdrawals from a Roth IRA or Roth 401(k) -- if you have those types of retirement accounts -- because these withdrawals don't count toward your provisional income. But otherwise, you may just have to budget your income in a way that takes those benefit taxes into account.
