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.
