Is Social Security Taxed in Retirement? 6 Things to Know

The vast majority of retirees in the United States rely on Social Security benefits as part of their retirement income. It’s an essential component of a long-term retirement plan for many people, whether they have other sources of retirement income or not.

But how are Social Security benefits taxed? Are your benefits taxed the same as other types of income? Do you have to pay taxes on survivors benefits? Can you have taxes withheld from your monthly Social Security income?

Tax planning is a vital ingredient to any good retirement strategy. In this article, our knowledgeable CERTIFIED FINANCIAL PLANNER™ professionals at Chatterton & Associates are breaking down everything you need to know about Social Security taxes in retirement.

1. Your Income, Not Your Age, Determines Taxability

A common misconception about Social Security is that benefits are no longer taxable after you reach the age of 70. The truth is that your Social Security benefits are taxed based upon your income alone, not your age. In general, every household whose income exceeds the standard deduction for the current year must file a tax return. But whether your Social Security benefits are taxed depends on your “combined” or “provisional” income.

Your provisional income is determined by adding up your adjusted gross income, your tax-exempt interest income, and half of your Social Security income for the current tax year.

A portion of Social Security benefits are taxable if this number exceeds:

$25,000 (for individual taxpayers)
$32,000 (for married couples)

Determine Whether Your Benefits Are Taxable

For more information on your specific situation, this interview tool on the IRS website will help you determine if your Social Security benefits are taxable.

2. You Won’t Be Taxed on All of Your Benefits

If you’re living on Social Security income alone, then your benefits may not be taxable at all. However, retirees who also rely on other sources of income, such as dividend income or retirement-account withdrawals, generally need to pay Social Security taxes. But you don’t have to pay taxes on the full amount of your annual Social Security income; only a portion of your benefits are taxable.

Any taxable portion of your benefits will be taxed as regular income. Here’s a breakdown of how Social Security benefits are taxed, depending on your combined income:

Benefits are not taxed if your combined income is under $25,000 (individuals) or $32,000 (married couples).
Up to 50% of benefits are taxed if your combined income is between $25,000 and $34,000 (individuals) or $32,000 and $44,000 (married couples).
Up to 85% of benefits are taxed if your combined income is above $34,000 (individuals) or $44,000 (married couples).

3. You Can Have Federal Taxes Withheld From Your Benefits

If you expect to owe federal tax on your Social Security income, you can have your taxes withheld from your monthly benefits. This can take some of the stress out of tax season because you’ll be paying taxes on your Social Security benefits throughout the year rather than dealing with a big bill when you file.

In order to opt into Social Security tax withholding, you can simply submit a request to the IRS by filling out Form W-4V and submitting it to your nearest Social Security office.

4. Tax Laws Apply to All Benefits Paid By Social Security Trust Funds, Not Just Retirement Benefits

The tax rules enforced by the IRS don’t just apply to Social Security retirement benefits. They apply to all forms of benefits paid out of the Social Security trust funds, which include:

Retirement benefits
Survivors benefits
Social Security Disability Insurance (SSDI)

If you receive any of these benefits, you may be subject to Social Security taxation, depending on your combined income.

Notably, the IRS tax rules do not apply to Supplemental Security Income (SSI), which is a separate program administered by the Social Security Administration whose benefits are paid out of the general US Treasury funds as opposed to the Social Security trust funds.

5. Cost-of-Living Adjustments Can Impact Social Security Taxes

Since 1975, Social Security has increased benefits annually based on increases in the cost of living, which is measured by the Consumer Price Index. These increases are referred to as Cost-of-Living Adjustments (COLAs), and they’re designed to help retirees maintain their standard of living as prices rise over time.

Annual COLAs ensure that benefits are continually adjusted for inflation. But the income tiers that determine taxability are not. Therefore, COLAs may, in some cases, push retirees over the income threshold, requiring them to pay taxes on their benefits.

6. You May Not Need to Pay State Taxes on Your Benefits

As previously discussed, your Social Security benefits are subject to federal tax laws. But depending on where you live, you may not need to pay any state taxes on your benefits. That’s because only some states impose such a tax.

As of 2024, the District of Columbia and 38 states (including California) do not impose taxes on Social Security benefits, while 12 states do. However, Colorado is a special case in that it only taxes benefits received by Coloradans below the age of 65. Tax rates, exclusions, and income limits vary among states, so it’s important to do your research or speak to a tax professional in your state.

Professional Tax Planning & Services for a Prosperous, Stress-Free Retirement

Planning for tax season and filing a return can be a stressful process at any stage of life. But for recently retired folks and those approaching retirement, taxes can be an especially complicated and frustrating process. That’s because most of us experience changes in our sources of income, our expenses, and our lifestyles when we reach this exciting milestone.

At Chatterton & Associates, our experienced tax professionals can help you navigate this transition successfully. We’re here to answer any questions you have about Social Security and taxes in retirement and help you create a retirement plan that helps you reach your financial goals, so you can focus on what truly matters to you most in your retirement years.

Sincerely,

The Team at Chatterton & Associates