Social Security Benefits and Taxes: What You Need to Know

During your working career, you’ve seen Uncle Sam take a chunk out of every single one of your paychecks to help pay for folks currently receiving benefits from Social Security.

Someday, you’ll finally be the one on the receiving end of those Social Security benefit checks (probably . . . maybe). Or possibly you’ve already traded the cubicle for the golf course and started seeing those retirement benefits pop up in your bank account.

Whatever your situation is, you might be wondering whether you’ll have to pay taxes on the benefits you get from America’s most talked-about safety net program.

As with anything involving taxes, there’s no simple answer (no shocker there). But stick around—we’ll help you understand if you have to pay taxes on your Social Security benefits and how much.

How Does Social Security Work?

First, let’s make sure we’re on the same page. When you earn income, your employer takes out Social Security taxes. The higher your income, the more you owe Uncle Sam. As of 2023, the max amount of your earnings that can be taxed for Social Security is $160,200.¹ That means that any income earned above $160,200 doesn’t get taxed. 

Now, this part may come as a surprise—the money that gets taken out of your paycheck for Social Security does not go into your own personal Social Security savings account. You’re not putting money away like you would with a 401(k). The IRS is taking this money, dumping it into one big bag, and dishing it out to people who are currently receiving Social Security benefits.

Still confused? You can learn more about how Social Security works here.

Is My Social Security Income Taxable?

That depends on the type of benefit you’re receiving. Social Security pays three different types of monthly income benefits that count as taxable income:

1. Retirement: This is money that is paid to retired workers once they reach early retirement age (which is currently age 62).
2. Disability: If you’re under full retirement age and suffer a severe medical injury that’s expected to keep you from working for a year or more (or have a condition that is expected to result in death), you could receive disability benefits.
3. Survivor: These benefits can be paid to a spouse, children or parents when someone dies under specific circumstances.

But Supplemental Security Income (SSI) benefits—which help aged, blind, and disabled people with limited income to pay for basic needs like food, clothing and shelter—are not taxable.²

Are All of My Social Security Benefits Taxed?

Ready for some good news? No, not all of your benefits will be taxed. (Whew, right?) At least some portion of your Social Security benefits might get taxed, sure. But you won’t ever pay taxes on more than 85% of your retirement benefits.³

How much you’ll pay in taxes on those benefits depends on how much other income you’re receiving. What does that mean, exactly?

Whether or not some of your Social Security benefits get taxed depends on your combined income. According to the Social Security Administration, that includes how much income you’re receiving in addition to some of your Social Security benefits.⁴

Your adjusted gross income
+
Nontaxable interest (such as Roth IRA investments)
+
Half of your Social Security benefits
=
Your combined income

For single filers, you won’t pay taxes on your Social Security benefits if your combined income is below $25,000. But you may have to pay federal income tax on 50% of your benefits if your total combined income is between $25,000 and $34,000. Once your combined income is greater than $34,000, you’ll likely pay taxes on 85% of your benefits.⁵  

Taxes don’t have to overwhelm you. See what’s best for your situation—and services you can trust.

If you’re married and filing jointly, you won’t pay taxes on your benefits if your combined income is lower than $32,000. You’ll generally pay taxes on 50% of your benefits if you and your spouse’s combined income is between $32,000 and $44,000. Once your combined income hits the $44,000 mark, you’ll likely pay taxes on 85% of your benefits.⁶ 

So, let’s say you’re a single filer and your benefits total $35,000 for the year. You’ll pay taxes on $29,750 ($35,000 x 85%), and if you have no other sources of retirement income, that lands you in the 12% tax bracket for the 2023 tax year.⁷ 

If you do end up having to pay federal taxes on your Social Security benefits, you can make quarterly tax payments or have taxes withheld.

How to Calculate Taxes on Your Social Security Benefits

If you’re currently receiving retirement, disability, or survivor benefits, you can figure out how much of it will be taxed based on how you file and your income amount.

When January rolls around, you should receive an SSA-1099 form from the IRS.⁸ This form shows how much Social Security you’ve received for the year—you’ll use that amount to calculate what taxes you owe on it.

Here’s an example. Let’s say you’re married and filing jointly, have a combined income of $80,000, and together receive $3,300 each month in Social Security benefits. Because you’re bringing in more than the $44,000 threshold for married filers, you’ll pay taxes on 85% of your $39,600 in annual benefits—or $33,660 ($39,600 x 85%).

If you and your spouse are in the 12% tax bracket, then you can expect to pay roughly $4,040 in taxes on your Social Security benefits.

What if My State Taxes Social Security Benefits?

So, we’ve been talking about federal income taxes. But there are currently 12 states that tax your Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.⁹ (Just when you thought things couldn’t get any more complicated, right?)

If you live in one of those states, check with your state tax agency to get details on how your benefits are taxed.

Can I Retire With Just Social Security?  

Social Security was never meant to fully support you in retirement. According to the Social Security Administration, the estimated average monthly retirement benefit for retirees in late 2023 is about $1,843.¹⁰ For those of you keeping score at home, that’s $22,116 per year . . . which is probably not enough to help you live out your retirement dreams.   

And if you think that isn’t enough, it’s also important to note that Social Security is only fully funded until 2034.¹¹ That means unless Congress, which is totally known for its ability to get stuff done (hope you picked up on the sarcasm there), makes some changes, future retirees might be looking at reduced benefits.

Bottom line? If your retirement plan is to rely completely on Social Security, you need a new plan. Banking on Social Security as your sole source of income when you retire—or heaven forbid, become disabled and can’t work—is not a smart idea.

The fact is, you’ve got to start saving for retirement and treat any Social Security benefits you might get as icing on the cake. And it’s never too early or too late to start saving for retirement—it’s what smart people do.

If you’re not sure how to get started, our SmartVestor program can connect you with an investment professional to help you prepare for your retirement future.

Work With a Tax Pro

As with every other tax topic, trying to figure out how your Social Security benefits will get taxed can have you feeling like someone threw mud in your eyes.

But you don’t have to figure it out on your own! Reach out to a RamseyTrusted tax advisor who can help so you can kick back and enjoy your retirement years in peace.

Connect with a tax pro today!