Taxation of Social Security Benefits

You’ve finally retired. You’ve reached the age when you can begin collecting Social Security. Life is easy until tax time rolls around. Then the obvious question arises: Do you have to pay income tax on those benefits?

It depends. Your benefits may be non-taxable or partially taxable, depending on how much extra income you have from other sources. Here’s how it breaks down.

If Social Security is Your Only Source of Income

If you never got around to investing in that 401(k), if you’re not renting out your home while you move in with your son or daughter, and if you’ve given up working entirely, your Social Security income is not taxable.

These are just examples – the point is that you can have no other income at all from any source. In most cases, you probably won’t even have to file a tax return.

If You Have Other Income

If you have other sources of income in addition to your Social Security benefits, a portion of your benefits might become taxable. You can use the Social Security Benefits Worksheet in the Instructions for Form 1040 (PDF) to calculate your taxable amount, but here’s how it basically works.

First, calculate your provisional income, then compare it to these base amounts. Your provisional income is your total worldwide income from other sources, including tax-exempt income, plus half your Social Security benefits.

These base amounts are used in figuring your taxable Social Security:

Filing status Base amount Additional amount
Single $25,000 $34,000
Head of Household $25,000 $34,000
Qualifying Widow(er) $25,000 $34,000
Married Filing Jointly $32,000 $44,000
Married Filing Separately $0

Married couples who file separate tax returns have two different methods for computing the taxable portion of their Social Security benefits:

  1. For married couples who lived in the same household at any time during the year, their base amount is zero. Up to 85% of their benefits will be subject to tax.
  1. Married couples who lived apart from each other for the entire year can use a base amount of $25,000 and the additional income amount of $34,000 for computing the taxable portion of their benefits, just as though they were single.

Figuring the Taxable Amount of Your Social Security Benefits

If your provisional income is below the base amounts for your filing status, your Social Security benefits are completely non-taxable. It’s that simple.

Let’s say you decided that you can’t stand to be totally idle, so you work as a cashier at your local convenience store a few hours a week. Your total income for the year from that source is $6,000. You collected $15,000 in Social Security benefits, so half of that – $7,500 – would contribute to your provisional income. That works out to $13,500, assuming you had no other sources of income, such as investments that are kicking off interest. This is below the threshold base amount of $25,000 if you’re single, so you would not have to pay taxes on your benefits.

If your provisional income falls between the base amount and the additional amount, half your Social Security benefits are taxable. Using the scenario above, you would be taxed on $7,500 of what you collected in benefits.

If your provisional income is over the additional amount, then 85 percent of your Social Security benefits over the additional amount becomes taxable.

The taxable portion of your Social Security benefits cannot exceed 85 percent of your total benefits.

Withholding on Social Security Benefits

You can elect to have federal income tax withheld from your Social Security benefits if you have reason to think you’ll end up paying tax on some portion of them. Federal income tax can be withheld at a rate of 7 percent, 10 percent, 15 percent or 25 percent. Use Form W-4V (PDF) to let the Social Security Administration know how much tax you would like to have withheld.

These are the basic rules. If you have multiple sources of other income, consider consulting with a tax professional to pin down your potential liability more exactly.