Is Social Security Income Taxable?

May 27, 2023 By Susan Kelly

Is income received from Social Security taxable? It is for the majority of American citizens. Because of combined income from SS and other sources, most people who receive Social Security payments must pay federal income tax on up to 50% or even up to 85% of that money. This is because their total income exceeds the relatively low thresholds at which taxes become applicable.

You may reduce the tax you must pay on your Social Security payments by using any of the following three strategies: invest a portion of your retirement income Roth IRAs, take distributions from your taxable income. So, how much of my social security income is taxable?

How Much of SS Income Is Taxable?

Since 1983, benefits received from Social Security are taxable if the recipient's income exceeds certain thresholds. Since those restrictions have not been updated to account for inflation since then, the vast majority of persons who receive Social Security benefits and have additional sources of income are subject to some level of taxation on those payments. However, no taxpayer, regardless of their income, will have all Social Security payments subject to taxation. The highest tier provides 85% of the overall benefit. The following is the formula that the Internal Revenue Service (IRS) uses to determine how much of an amount is subject to taxation:

Your AGI from Social Security and all other sources will be the starting point for the computation. This may include salary, profits from self-employment, interest, dividends, RMDs from eligible retirement accounts, and other forms of taxable income.

After that, we add tax-free interest to the total. (It is not subject to taxation but is included in the total.)

If the sum in question exceeds the minimum taxable income threshold, at least half of your Social Security payments will be included as taxable income. After that, you may take the standard deduction or itemize your deductions to calculate your net income. The amount of tax you are responsible for is determined by where exactly that figure falls inside the federal income tax tables.

Individual Tax Rates

If you file a federal tax return as an individual and your total gross income from all sources is at or above the following thresholds, you will be required to pay taxes on the benefits you get.

  • If your benefits are between $25,000 and $34,000, you could have to pay income tax on as much as half of them.
  • If your income exceeds $34,000, the IRS may tax up to 85% of your benefits.
  • If you are receiving Social Security payments, the Internal Revenue Service provides a spreadsheet that may be used to compute the entire amount of income taxes due.

If you discover that your annual gross income is more than $25,000 for an individual or $32,000 for a couple, your taxable income will be raised by up to fifty percent of the amount you got from Social Security. This is if your taxable income was previously less than those thresholds. If you have a combined income of more than $34,000 as an individual or $44,000 as a couple, the proportion of your Social Security payout subject to taxation will increase to 85%.

Consider the following scenario: you are an individual taxpayer and get the typical amount of Social Security, which is around $18,000 per year. You also had revenue from "other" sources totaling $20,000. When you combine the two amounts, you arrive with a gross revenue of around $38,000. On the other hand, your total income is only included as $29,000 (this includes your other income in addition to fifty percent of your Social Security payments).

That puts you within $25,000 to $34,000 for a tax that equals fifty percent of your benefits. Your taxable amount is thus equal to one-half of the difference between your income and the threshold of $25,000, which is $2,000 ($29,000 minus $25,000 = $4,000; $4,000 divided by 2 = $2,000). When there are several sources of income, the computation may become more difficult to understand for the taxpayer.

Married Tax Rates

Your benefits will be subject to taxation if you and your spouse file joint taxes and your combined income exceeds the threshold.

  • If your benefits are between $32,000 and $44,000, you could have to pay income tax on as much as half of them.
  • If your income exceeds $44,000, the IRS may tax up to 85 percent of your benefits.
Related Articles