Taxation of Social Security Benefits
Most retirees are aware that the government taxes retirement income from tax-deferred retirement savings and pensions. But the federal income tax on Social Security often catches retirees by surprise, driven partly by the fact that it’s not always clear who owes it and how much they owe.
The Social Security reforms that instituted the federal income tax legislated that the income thresholds for taxation would not be indexed for inflation. The goal was that the tax would start out affecting a relatively small part of the enrolled population but grow over time. The has held true: as recently as 1999, only 7.4% of beneficiaries paid taxes on benefits. But today, about half of Social Security beneficiaries do, and that figure is continuing to rise.
The formula used to determine whether some portion of your benefit will be taxed is unique to Social Security and starts with calculating your “provisional income”:
Provisional Income = Adjusted Gross Income + Nontaxable interest + 50% of your Social Security benefit
From there, you can determine how much of your Social Security benefits are subject to taxes:
| Filing Status | Provisional Income – Amount of benefit subject to tax |
|---|---|
| Married filing jointly | Under $32,000 – 0% $32,000 to $44,000 – up to 50% Over $44,000 – up to 85% |
| Single, Head of Household, Qualifying Widow(er) Married filing separately and not living with spouse |
Under $25,000 – 0% $25,000 to $34,000 – up to 50% Over $34,000 – up to 85% |
| Married filing separately and living with spouse | Over $0 – up to 85% |
The IRS has a helpful calculator to determine if any part of your benefits is taxable.
Check with your financial professional for updates. Information contained herein is current as of 2/28/2024. It is subject to legislative changes and is not intended to be legal or tax advice. Consult a qualified tax advisor regarding specific circumstances. This material is furnished “as is” without warranty of any kind. Its accuracy and completeness is not guaranteed and all warranties expressed or implied are hereby excluded.
