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Social Security Is Taxable? Don’t Be Caught Off Guard.

Here’s how to determine what you owe this tax season.


Though most retirees find that their tax burden falls in retirement, there’s one tax that consistently seems to surprise and confuse people: the taxation of Social Security benefits.

Most retirees know that the government takes a bite from other sources of retirement income, such as tax-deferred retirement savings and pensions. But the federal income tax on Social Security often catches retirees by surprise, partly because it’s not always clear who owes it and how much they owe.

In short: The tax hits retirees with relatively higher incomes, which typically includes people who are still working or receiving a good deal of income from pensions or other retirement saving accounts. But the proportion of people who owe the tax has been rising over time—and that is by design.

Let’s dig into the details: how Social Security is taxed and when, and how to manage the tax if you need to pay it.

Have Social Security Benefits Always Been Taxed?

Taxation of Social Security benefits began as a result of a major set of Social Security reforms in 1983, which was enacted to stabilize the program’s finances. (This is the same package that implemented the gradual lifting of retirement ages.)

The tax revenue is credited to the Social Security Trust Fund, which funds future Social Security payments. Taxation of benefits for higher-income households was expanded in 1994, and that additional revenue is dedicated to shoring up the Medicare Part A trust fund.

The 1983 package also legislated that the income thresholds for taxation wouldn’t be indexed for inflation or real income growth so that it would start out affecting a relatively small part of the enrolled population but grow over time. Case in point: As recently as 1999, just 7.4% of beneficiaries paid taxes on benefits. But today, about half of Social Security beneficiaries do, and that figure is continuing to rise.

Who Pays Taxes on Social Security Benefits?

The formula used to determine whether some portion of your benefit will be taxed is unique to Social Security.

First, you determine a figure that Social Security calls “combined income” (also sometimes called “provisional income”). The formula to calculate your combined income is:

Combined 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:

You can also use this helpful calculator from the IRS to determine if any part of your benefits is taxable.

Is the Social Security Tax the Same as the Earnings Test?

In short: No.

The retirement earnings test is the formula that withholds benefits for people who have claimed Social Security benefits below their full retirement age, or FRA, and still earn income from work. In these cases, Social Security withholds $1 in benefits for every $2 you earn in excess of an exempt amount of income.

Although some people think of the earnings test as a tax, it’s not. After you reach your FRA, Social Security recalculates your benefit to give credit for the withheld payments. The payments are added back in during the year after you reach your FRA.

The annual exempt amount for 2024 is $22,320, but there are some twists and turns to the way this formula works. Consult this page on the Social Security website for details.

How Should You Pay the Social Security Tax?

You have two options:

  1. Elect to have Social Security withhold taxes on your benefits and do a true-up when you file your tax return.

  2. Make estimated quarterly tax payments through the year, just as you would any other income that has no tax withheld. Consult the IRS rules on estimated tax payments to learn more.

Look for IRS Form SSA-1099 in the mail from the IRS during tax season, which reports your net benefit that’s subject to tax (after Part B Medicare premiums have been subtracted).

You’ll also want to check whether your state exempts Social Security income. Thirty-seven states and the District of Columbia either have no income tax or do not include Social Security benefits in their calculation for taxable income, according to the Tax Foundation.

How the Social Security Tax Fits in a Retirement Plan

Make sure that taxation of Social Security benefits is on your radar for planning purposes.

Most importantly, higher-income people should be aware that some portion of projected benefits will go back to the government, and you should decide how you want to pay the tax ahead of time.

Beyond that, think of the Social Security tax as part of a bigger picture of taxes in retirement, which may also include:

  • Taxes on drawdowns from tax-deferred accounts. This is the most important component, especially since this is where most people have the bulk of their savings stashed when they reach retirement.

  • Taxes on required minimum distributions. These are becoming a bigger deal due to the surging stock market and new rules pushing the RMD age higher, translating to larger balances when they do come due.

  • Surcharges on Part B and Part D Medicare premiums (income-related monthly adjustment amounts). While technically not a tax, the surcharge certainly can feel like one.

Some careful planning may reduce your tax burden in retirement, depending on your individual circumstances. The options include qualified charitable distributions, Roth conversions, or even leaving assets in a 401(K) if you’re still working since RMDs are not required on these accounts. Notably, RMDs are no longer required on assets held in Roth 401(k) accounts starting this year under the Secure 2.0 legislation approved by Congress in 2022.

You probably won’t be able to avoid the Social Security tax altogether—especially if you are still working while receiving benefits or have high amounts of other taxable retirement income—but you can plan for it to avoid any surprises or penalties in April.


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