Lately, there has been a lot of discussion about Social Security, including a proposal to eliminate taxes on benefits. While this sounds appealing, an analysis by the University of Pennsylvania warns that doing so could reduce federal revenue by $1.5 trillion over the next decade, increasing national debt and accelerating Social Security’s depletion by two years.
In this article, I would like to explore how Social Security Benefits are taxed. I will guide you through the steps to determine how much of your benefits may be subject to federal taxes, discuss which states currently Social Security benefits, and explain how to pay federal income taxes if your benefits are taxable.
Are Social Security Benefits Taxed?
Many people ask whether Social Security benefits are taxable. The short answer is yes, but not for everyone. If Social Security benefit is your only income, you likely won’t owe federal taxes. However, if you have additional income—such as wages, retirement withdrawals, or investments—a portion of your benefits may be taxable. Still no more than 85% of your social security benefit will be taxable.
To determine whether Social Security benefits are taxable, you need to calculate Provisional (Combined) Income. This consists of:
- Your total income (excluding Social Security)
- Tax-exempt interest income
- 50% of your Social Security benefits
You then compare your Provisional Income to the IRS table below to determine the taxable portion of your benefits.
| TAX FILING STATUS | PROVISIONAL INCOME | SOCIAL SECURITY TAXED |
| SINGLE FILERS | Less than $25,000 | 0% |
| $25,000 – $34,000 | Up to 50% | |
| More than $34,000 | Up to 85% | |
| JOINT FILERS | Less than $32,000 | 0% |
| $32,000 – $44,000 | Up to 50% | |
| $More than $44,000 | Up to 85% |
Example Calculation
Consider a married couple who receives $40,000 of Social Security benefits and withdraws $35,000 from their Traditional 401k. Since they have no other income, their Provisional Income is calculated as follows:
$35,000 (401k withdrawal) + $20,000 (50% of Social Security) = $55,000
Using the IRS table for Married Filing Jointly, the taxable portion of their Social Security benefit is determined as follows:
- The first $32,000 is tax-free
- The next $12,000 (between $32,000 and $44,000) is 50% taxable, adding $6,000 to taxable income.
- The remaining $11,000 (above $44,000) is 85% taxable, adding $9,350 to taxable income.
- Total taxable Social Security: $15,350
Roth 401(k) Advantage
If the couple had withdrawn from a Roth 401(k) instead of a traditional 401(k), their withdrawals would be tax-free and not count as income—potentially keeping their Social Security benefits tax-free. This highlights the importance of strategic retirement planning.
State Taxes on Social Security
As of March 2025, nine states tax Social Security benefits: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. Many of the states provides tax credits, exemption, or income thresholds that reduce the impact of Social Security taxes, meaning the overall effect on retirees may be minimal.
How to Pay Social Security Taxes
If you expect to owe federal taxes on your Social Security benefits, you can opt for voluntary withholding by submitting Form W-4V to the Social Security Administration. You can choose withhold rates of 7%, 10%, 12%, or 22%. Your monthly benefits will be adjusted accordingly.
In January of the following year, you will receive Form 1099-SSA, which details your total Social Security benefits and the amount of federal income tax withheld. This form is essential when filing your tax return.
Key Takeaways
- If Social Security is your only income, it’s likely tax-free.
- Additional income increases the portion of Social Security benefits that may be taxable.
- No more than 85% of Social Security benefits are ever taxable.
- Some states tax Social Security benefits; others don’t.
- Strategic planning, including Roth withdrawals, can help minimize tax liability.
Proper tax planning ensures you maximize your retirement income while minimizing tax surprises. A well-thought-out financial strategy is key to optimizing your retirement.