There are plenty of things to love about Social Security, including the millions of Americans it has kept financially afloat in retirement over the 90 years it has been in place. I'd imagine that few people would disagree with that. However, there is one slight detail about Social Security that not everybody will be jumping for joy about.
Social Security, like other forms of income, is still considered income, meaning that benefits are sometimes subject to taxation. The good news is that most recipients won't have to pay taxes on their benefits, but "most" means that there are some who will. Let's take a look at which side you may fall on.
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States that have Social Security taxes
If you live in any of the following nine states, there's a chance that you may have to pay taxes on your Social Security benefits:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
It's worth noting that just because a state is currently taxing Social Security doesn't mean that will always be the case. In recent years, states like Missouri and Nebraska have removed their taxes, and West Virginia is in the process of removing its (it will be eliminated entirely in the 2026 tax year).
There's no guarantee that other states will follow suit, but it should be encouraging for recipients in these states to know it's not far-fetched that their states may reconsider their stance on these taxes.
Federal rules apply regardless of state rules
As with other taxes, you need to consider the differences between the state and federal levels. Even if your state doesn't tax Social Security benefits, that doesn't mean that you're off the hook when it comes to federal taxes on benefits.
Whether you'll need to pay federal taxes on benefits, and how much, depends on what the IRS calls your "combined income." This includes your adjusted gross income (AGI), half of your annual Social Security benefit, and any nontaxable interest you receive (such as from certain bonds).
For example, if your AGI is $15,000, you receive $24,000 annually from Social Security, and you have $1,000 in nontaxable interest, your combined income would be $28,000 ($15,000 + $12,000 + $1,000).
How federal Social Security taxes work
Once the IRS calculates your combined income, it uses the following thresholds to determine how much of your benefits are eligible to be taxed:
| Percentage of Taxable Benefits Added to Income | Filing Single | Married, Filing Jointly |
|---|---|---|
| 0% | Less than $25,000 | Less than $32,000 |
| Up to 50% | $25,000 to $34,000 | $32,000 to $44,000 |
| Up to 85% | More than $34,000 | More than $44,000 |
Source: IRS.
The key phrasing is "eligible to be taxed" because these percentages are how much of your benefits can be subjected to the tax, not how much of your benefits are taxed. The eligible amount is added to your other income and then taxed at your typical income tax rate.
As an example, let's assume you're married, filing jointly, and your combined income is $28,000 ($24,000 in annual Social Security benefits). In this case, up to $12,000 of your benefits would be added to your regular income. If your tax bracket is 12%, you would pay up to $1,440 in taxes on $24,000 in benefits.
A large portion of Social Security recipients will have a combined income that falls in the 0% range because Social Security makes up most of their retirement income, so federal taxes typically only apply to a relatively small number of people.
