It often comes as a surprise to many retirees, but a portion of your Social Security benefits may be subject to taxes depending on your overall income in retirement.
Because those taxes can eat into the income you expect to draw from in retirement, it’s very important to factor taxes into your planning. To help, here are some answers to some common questions we often get about Social Security taxes:
Monthly retirement benefits, survivor benefits, and disability insurance benefits are all typically taxable — again, depending on a person’s income, which we’ll get to in a minute. However, Supplemental Security Income, which is a separate program run by the Social Security Administration (SSA), are not taxable.
Typically, if half of your annual benefits combined with your other income exceeds $25,000 per year (if you are a single filer) or $32,000 (if you are part of a married couple filing jointly) then 50% of your benefits will be taxable. If your combined income exceeds $34,000 (single) or $44,000 (married filing jointly), then up to 85% of your benefits may be subject to tax.
IMPORTANT NOTE: Earlier this month, Congress passed a new bill that provides a temporary tax deduction of up to $6,000 for those aged 65 and older with an adjusted gross income of $75,000 or less (single) or $150,000 or less (married filing jointly). The deduction phases out for incomes above these limits, ending at $175,000 for individuals and $250,000 for married couples.
It's important to note that this does not eliminate taxes on Social Security benefits, as some communications have claimed. However, it can reduce the amount of Social Security income that is subject to the tax, so some individuals may find that they do not need to pay any taxes on their benefits at all.
This deduction lasts only until 2028. If you have any questions about it, or about Social Security taxes in general, please let us know.
If your benefits are considered taxable, you can choose to pay those taxes all at once when you file your annual return, or by withholding taxes on your monthly payments. (In essence, receiving a smaller check each month because some of your payment is going to taxes.) If you choose the latter option, you must submit a request to the SSA, where you can choose to withhold 7%, 10%, 12%, or 22% of your monthly payment.
It depends. Most states do not tax Social Security benefits, but the following states do: