How is Social Security taxed?

If your total income is more than $25,000 for an individual or $32,000 for a married couple filing jointly, you must pay federal income taxes on your Social Security benefits. Below those thresholds, your benefits are not taxed. That applies to spousal benefits, survivor benefits and Social Security Disability Insurance (SSDI) as well as to retirement benefits.

The portion of your benefits subject to taxation varies with income level. You’ll be taxed on:

• up to 50 percent of your benefits if your income is $25,000 to $34,000 for an individual or $32,000 to $44,000 for a married couple filing jointly.
• up to 85 percent of your benefits if your income is more than $34,000 (individual) or $44,000 (couple). 

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Say you file individually, have $50,000 in income and get $1,500 a month from Social Security. You would pay taxes on 85 percent of your $18,000 in annual benefits, or $15,300. Nobody pays taxes on more than 85 percent of their Social Security benefits, no matter their income.

The Social Security Administration estimates that about 56 percent of Social Security recipients owe income taxes on their benefits.

For purposes of determining how the Internal Revenue Service treats your Social Security payments, “income” means your adjusted gross income (line 11 of your 1040 form) plus nontaxable interest income plus half of your Social Security benefits. The IRS has an online tool that calculates how much of your benefit income is taxable.

All of the above concerns federal income taxes. Twelve states also tax Social Security to varying degrees: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Vermont, Utah and West Virginia. 

Some follow the federal rules for determining if benefits are taxable, others have their own sets of deductions and exemptions based on age or income. Colorado, New Mexico and West Virginia are eliminating taxation of benefits for most older residents, and Nebraska is phasing it out entirely over the next few years. Contact your state tax agency for details on how benefits are taxed.

Keep in mind

• If your child receives Social Security dependent or survivor benefits, those payments do not count toward your taxable income. That money is taxable if the child has sufficient income (from Social Security and other sources) to have to file a return in his or her own name.
• Supplemental Security Income (SSI) is never taxable.
• If you do have to pay taxes on your benefits, you have a choice as to how: You can file quarterly estimated tax returns with the IRS or ask Social Security to withhold federal taxes from your benefit payment.