When is Social Security taxed?

The IRS taxes Social Security in different ways depending on your circumstances.
The IRS taxes Social Security in different ways depending on your circumstances.
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As many Americans prepare to retire, they count on Social Security benefits to help them live out their golden years. After years of working, it's time to sit back and reap the benefits, but there are a few tax issues to figure out first.

Social Security is a public program in the United States. Established in 1935, it provides economic assistance for the retired, elderly, disabled, or survivors of those who were already receiving Social Security. When you get a job, the government requires both you and your employer to pay Social Security tax. This money goes into a public fund, and the more Social Security taxes you pay, the more Social Security benefits you receive.


Most people apply for Social Security upon retirement, which can be as early as age 62 or as late as age 70 [source: SSA]. If you start your benefits early, however, the government reduces them based on the number of months you get benefits before reaching retirement age. If you wait until full retirement age, you receive 100 percent of your benefits. You can calculate your retirement age on the Social Security website .

Your Social Security benefits are subject to taxes, just like any other form of income, and the IRS starts taxing them when you start receiving them. However, the IRS taxes your Social Security in different ways depending on your circumstances.

Typically, the more income you're earning in addition to Social Security, the higher the taxes on your benefits. This means that if you're earning income from another job, or receiving income from a retirement account it affects how much tax you have to pay on your Social Security benefits. If your Social Security benefits are your only source of income, you probably don't have to pay any taxes at all.

Here are the income thresholds [source: Hinden]:

  • If your combined income (according to the IRS, your adjusted gross income plus one-half your Social Security benefits) is below $25,000, your Social Security benefits aren't taxed.
  • If your income is between $25,001 and $34,000, up to 50 percent of your Social Security benefits can be taxed.
  • If your income is above $34,000, up to 85 percent of your benefits are subject to tax by the IRS.

These numbers change slightly if you are filing jointly with your spouse. The $25,000 threshold for taxation moves up to $32,000. If you and your spouse earn between $32,001 and $44,000, up to 50 percent would be taxed. If your joint income was above $44,000, the taxed amount would be 85 percent.

If you have investments or retirement accounts, you might be able to ease a bit of the tax sting. Work a little less to move down your income threshold if you're right on the edge. You could also arrange your investment income to pay out only at certain times, which could also lessen the taxes on your adjusted gross income [source: Cussen].

Additionally, you can contact Social Security and ask them to withhold taxes from your benefits to make it easier once April 15 rolls around each year. You can also download the tax form IRS Form W-4V online. Many states don't tax Social Security benefits or have different rules about exemptions, so be sure find out if you have to pay those taxes as well. Because tax rules governing Social Security can be tricky, it's advisable to work with a trusted professional to set the best retirement strategy for you.


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Related Articles

  • Cussen, Mark P., CFP®, CMFC, AFC. "Avoid The Social Security Tax Trap." Investopedia. 2012. (Sep. 28, 2014) http://www.investopedia.com/articles/pf/08/social-security-tax.asp
  • Hinden, Stan. "Are My Social Security Benefits Taxable?" AARP. Feb. 10, 2014. (Sep. 28, 2014) http://www.aarp.org/work/social-security/info-2014/social-security-benefit-taxes.html
  • Schwab-Pomerantz, Carrie, CFP. "Do You Have to Pay Income Taxes on Social Security Benefits?" Huffington Post. Sep. 24, 2014. (Sep. 28, 2014) http://www.huffingtonpost.com/carrie-schwabpomerantz-cfp/do-you-have-to-pay-income_b_5864724.html
  • Social Security. "Retirement Planner: When To Start Your Benefits." 2014. (Sep. 28, 2014) http://www.socialsecurity.gov/retire2/applying1.htm