Millions of older Americans rely on Social Security to make ends meet in retirement. And for some people, those monthly benefits are their only source of income.
If that's the case for you, then you may not have to pay taxes on the benefits Social Security provides you with. But generally speaking, Social Security benefits are taxable. And in 2025, a growing number of retirees could end up getting hurt by a long-standing rule.
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Why more people face taxes on their benefits in 2025
In 2025, Social Security benefits are getting a 2.5% cost-of-living adjustment (COLA). And while that COLA is far from the most generous to arrive in recent years, it could still result in more money in a lot of people's pockets.
Here's why that could be a problem. Taxes on Social Security apply to seniors at a fairly low income level. And the more money beneficiaries get, the more likely they are to end up having to pay those taxes.
Whether you're subject to taxes on your Social Security benefits or not in 2025 depends on your combined income, which is calculated as your adjusted gross income (AGI) plus nontaxable interest you earn, plus 50% of what Social Security pays you all year long. So let's say your AGI is $22,000, you earn $2,000 a year in municipal bond interest, and your annual Social Security benefit is $24,000. That puts your combined income at $36,000.
Meanwhile, if you're single, a combined income between $25,000 and $34,000 means you may have to pay taxes on up to 50% of your Social Security benefits. Beyond $34,000, you may be taxed on up to 85% of your benefits.
If you're married, these thresholds rise only a bit. With a combined income between $32,000 and $44,000, you may have to pay taxes on up to 50% of your Social Security benefits. And beyond $44,000, you may be taxed on up to 85% of your benefits.
Not only are these fairly low thresholds, but they were established decades ago and haven't changed since. And with Social Security benefits getting a small increase in the new year, more people may find themselves owing taxes when they didn't before.
How to avoid paying taxes on your Social Security benefits
You may be ready to resign yourself to paying taxes on some of your Social Security benefits. But there's one key step you can take to lower your combined income and potentially avoid that fate: housing your retirement savings in a Roth account.
The nice thing about Roth retirement plan withdrawals is that they're not considered income because they're not taxable. So getting back to the example, let's say the only earnings you have to count toward your combined income are $2,000 a year in municipal bond interest and $24,000 a year in Social Security. That's a combined income of $14,000, so taxes on your benefits shouldn't apply to you. A combined income of $36,000, on the other hand, means you could face taxes on up to 85% of your benefits if you're single.
Of course, it would be nice if lawmakers were to make changes to these combined income thresholds so fewer seniors are taxed on their Social Security benefits. But that's only one of many flaws with the program that policymakers will have to address in the coming years.
