Tax season is upon us, and most seniors can expect to give a portion of their retirement savings and any employment income back to the government. But that might not be all they owe.
The IRS taxes the Social Security benefits of some seniors as well. Here are four things all beneficiaries ought to know before filing their taxes this year.
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1. The federal government taxes some seniors' benefits
The federal government taxes seniors' benefits if their provisional income -- adjusted gross income (AGI) plus nontaxable interest and half your annual Social Security benefit -- exceeds certain thresholds. The table below outlines how much of your benefit could be subject to tax:
|
Marital Status |
0% of Benefits Taxable |
Up to 50% of Benefits Taxable |
Up to 85% of Benefits Taxable |
|---|---|---|---|
|
Single |
Provisional incomes under $25,000 |
Provisional incomes between $25,000 and $34,000 |
Provisional incomes greater than $34,000 |
|
Married |
Provisional incomes under $32,000 |
Provisional incomes between $32,000 and $44,000 |
Provisional incomes greater than $44,000 |
Source: Social Security Administration.
To be clear, this doesn't mean you could lose up to 85% of your benefits. It means you could pay income tax on up to 85% of your benefits. How much you'll actually lose depends on your provisional income and your tax bracket. The highest tax bracket is 37%, and most people pay far less than this.
2. Some states tax benefits as well
Twelve states taxed Social Security benefits in 2023. If you live in one of them, you could owe your state government a portion of your benefits as well. But each state has its own formula for determining which seniors pay the benefit taxes. Typically, only those with high incomes and/or large Social Security benefits owe them. Contact your state department of taxation to learn more about how it handles these taxes.
Also, a note for Missouri and Nebraska residents: These states eliminated their Social Security benefit taxes at the start of 2024. However, if you claimed benefits during 2023, you could still run into these taxes when you file your upcoming return. It won't be an issue in future years, though.
3. Some seniors may be able to avoid benefit taxes
Since federal Social Security benefit taxes are based on income, some seniors may be able to avoid them by reducing their taxable income. This could be accomplished by simply reducing spending and therefore the need for more taxable withdrawals, or perhaps relying more upon Roth savings if you have them. You fund Roth accounts with after-tax dollars, which means you're able to make tax-free withdrawals in retirement.
However, this strategy is becoming increasingly difficult to pull off. Social Security cost-of-living adjustments (COLAs) keep raising average benefits. And the government hasn't changed the above thresholds for Social Security benefit taxation since the 1980s. As a result, more seniors run into these taxes every year.
4. You can request that the IRS withhold taxes from your checks
Those who don't want to worry about a surprise bill when they file their tax return may prefer to have the IRS withhold money from their Social Security checks upfront. All you have to do is fill out Form W-4V and mail or fax it to your local Social Security office.
Even if you don't owe Social Security benefit taxes this year, keep this in the back of your mind. You could run into them in the future, and having these taxes withheld from your checks upfront could make filing your returns a little less stressful.
