How Social Security Benefits Are Taxed

how Social Security benefits are taxed

Understanding how Social Security benefits are taxed is an important part of retirement planning. Because, as many of us have learned the hard way, if you don’t plan for taxes, you may get a nasty surprise come tax time. 

In my 24+ years as a financial advisor, there are 2 questions I get asked over and over again:  

#1 Are my Social Security benefits taxable? 

#2 If so, by how much?

And my answer always is, “How Social Security benefits are taxed depends on your income.”

According to IRS guidelines, you must pay Federal income taxes on your Social Security benefits if your income is more than $25,000 for an individual or $32,000 for a married couple filing jointly.

If your income is less than this, your benefits are not taxed.

How Social Security Benefits Taxes Are Calculated

Federal income taxes apply to the following Social Security benefits:

  • Social Security retirement benefits
  • Spousal benefits
  • Survivor benefits  
  • Social Security Disability Insurance (SSDI)

How much you are taxed is determined by the following:

  • Up to 50% of your benefits if your total adjusted income is $25,000 to $34,000 for an individual, or $32,000 to $44,000 for married filing jointly.
  • Up to 85% of your benefits if your total adjusted income is more than $34,000 for an individual, or $44,000 for married filing jointly. 

The IRS calculates your income as half of your Social Security benefits, plus your adjustable gross income, plus any interest income for the year.

Your total adjusted gross income
+ Nontaxable interest
+ ½ of your Social Security benefits
= Your taxable income 

Let’s say you’re a married couple filing jointly with $60,000 in income, and you have a combined $2,000 per month in Social Security benefits. 

Since you are over the $44,000 threshold, you will pay taxes on 85% of your annual benefits of $24,000, or $20,400.

This is now added to your $60,000 of income – for a total of $80,400 in taxable income for the year.

Use this IRS calculator to see if your benefits are taxable

Paying State Taxes on Social Security Benefits

In addition to Federal taxes, there are also 12 states that also tax Social Security benefits. 

  • Colorado
  • Connecticut
  • Kansas
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Mexico
  • Rhode Island
  • Vermont 
  • Utah 
  • West Virginia 

Again, this is why
Social Security planning is critical to your retirement future – and why people purposely move to certain states that don’t tax benefits. 

If you live in one of these states, check to see how Social Security benefits are taxed, and by how much.

How to Increase Social Security Benefits before Retirement

Equally important to understanding how Social Security benefits are taxed so you can properly prepare for retirement is making sure you get the most benefits as possible.

There are 2 main ways to increase your Social Security benefits before you retire:

  • Work the Maximum 35 years that Social Security calculates.
  • Delay claiming your benefits to the most beneficial time.

Work All 35 Years 

The easiest way to increase your Social Security benefits is to work the 35 years that Social Security counts – and make as much as you possibly can make in those years. 

Your Social Security benefits are based on your lifetime earnings. Actual earnings are adjusted or indexed to account for changes in average wages since the year the earnings were received. 

Then, Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most. 

Your highest 35 years of earnings are used to calculate your benefits – this includes the years where you earned nothing.

A quick way to increase your benefits is to replace those zero years with actual earnings. 

Also, you can replace the smaller earning years with larger earnings. If you need more earnings, consider picking up a few extra hours or taking on a side hustle to increase your benefits.

Use the statement from to see how many zeros you have and replace them.

Check Out This Video on How to Read and Understand Your Social Security Statement

Delay Claiming Your Social Security Benefits as Long as Possible

Waiting to claim your Social Security benefits may not be a popular choice. However, by waiting, your benefits are increased by a certain percentage for each month you delay starting your benefits

You can begin receiving benefits as early as age 62, or age 60 for widow or survivor benefits. 

For every month you delay taking benefits, you increase them by ½%.

If you wait until full retirement age (FRA), you could receive about 30% more in monthly benefits. 

If you get to FRA and you aren’t ready to retire, you can increase your benefits all the way up to age 70 – the age you must claim your benefits. You will average around an 8% increase annually from full retirement age up to age 70. 

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