Understanding Tax on Social Security Benefits

Receiving Social Security benefits is advantageous in retirement, but like many other forms of income, these benefits can be subject to tax by the Federal Government. To accurately predict your retirement income (and taxes), it’s important to understand how Social Security benefits are taxed.

How are Social Security Benefits Taxed?

While Social Security Income makes up a significant amount of income for many retirees, a portion of these benefits may be subjected to federal income taxes. The Internal Revenue Service (IRS) uses a formula—known as the provisional income formula—to determine taxable income.

Provisional Income Formula

An individual’s provisional income, also known as combined income, is generally calculated by adding together their adjusted gross income, tax-exempt interest, and one-half of their Social Security benefits. The resulting amount is then compared to specific income thresholds to determine whether a portion of the benefits may be subject to federal income tax.

Taxation Thresholds

The thresholds that determine whether Social Security benefits are taxable are as follows:

• Single filers with a provisional income between $25,000 and $34,000 may have up to 50% of their social security benefits subject to federal income tax.
• Single filers with a provisional income exceeding $34,000 may have up to 85% of their social security benefits subject to federal income tax.
• Couples married filing jointly with a provisional income between $32,000 and $44,000 may have up to 50% of their social security benefits subject to federal income tax.
• Couples married filing jointly with a provisional income exceeding $44,000 may have up to 85% of their social security benefits subject to federal income tax.

It’s important to note that these thresholds are not adjusted for inflation, which means that more retirees may have a portion of their benefits become subject to taxation over time. Different rules may also apply to those who are married and file separate tax returns.

State Taxes on Social Security Benefits

In addition to federal taxes, some states may also tax Social Security benefits. The rules, exemptions, and income thresholds can vary by state and may change over time. Understanding the tax laws where you live can help you more accurately estimate your retirement income and overall tax liability.

Strategies That May Help Minimize Social Security Taxes

There are several strategies that you can implement to potentially reduce the taxes on your Social Security benefits. Here are a few:

Diversify Your Retirement Income

Having multiple sources of retirement income can provide greater flexibility when managing your tax situation. Depending on where your retirement income and withdrawals come from, you may be able to better manage your combined income and the portion of your Social Security benefits subject to federal income tax.

Consider Delaying Benefits

Delaying Social Security benefits can increase the amount of your monthly payment if you wait beyond your full retirement age, up to age 70. The decision about when to claim benefits can also involve factors such as your other income, taxes, retirement savings, health, and long-term financial goals.

If you continue working while receiving Social Security benefits before reaching full retirement age, the Retirement Earnings Test may temporarily reduce your benefits if your earned income exceeds certain limits. In 2026, the annual earnings limit is $24,480 for individuals who are below full retirement age for the entire year. A higher limit of $65,160 applies in the year you reach full retirement age and only applies to earnings before the month you reach that age. Once you reach full retirement age, your earnings will no longer reduce your benefits.

Create a Withdrawal Strategy

Strategically managing withdrawals from different types of retirement accounts can affect your overall tax situation. Depending on your circumstances, coordinating withdrawals from taxable, tax-deferred, and tax-free accounts may help you manage your combined income and the portion of your Social Security benefits subject to taxation.

Understand State Tax Laws

If you live in a state that taxes Social Security benefits, familiarize yourself with the rules and exemptions that apply where you live. Consulting with a tax professional can help you better understand your state tax situation. You may also want to consider state and local taxes, including property taxes, when evaluating where you will live in retirement.

While paying taxes may not always be enjoyable, planning ahead can help reduce the stress or surprise of an unexpected tax bill. Understanding how your Social Security benefits may be taxed can also help you create a more accurate retirement income plan and better prepare for the years ahead.

Spiritual Application

In his later years of life, Solomon reflected much on the patterns of life and gave wise counsel on how to prepare for all of the unknown events that we might, and in many cases should expect, to encounter. In Ecclesiastes 11:6(NLT), he wrote, “Plant your seed in the morning and keep busy all afternoon, for you don’t know if profit will come from one activity or another—or maybe both.” 

There are many uncertainties in life that we will never be fully prepared for, and we can only continue doing what we know to do in both our natural and spiritual lives. However, just as a farmer continues planting his fields year after year, we too can continue preparing and planting seeds for the future. It is through consistent effort and faithful stewardship that we create opportunities tosee our efforts bear fruit over time.

Frequently Asked Questions

Are Social Security benefits taxable?

A portion of your Social Security benefits may be subject to federal income tax, depending on your total income and tax filing status.

How much of Social Security is taxable?

Depending on your income, up to 50% or 85% of your Social Security benefits may be subject to federal income tax.

What is provisional income for Social Security?

Provisional income generally includes your adjusted gross income, tax-exempt interest, and one-half of your Social Security benefits. It is used to help determine whether a portion of your benefits is taxable.

Can retirement withdrawals affect Social Security taxes?

Yes. Withdrawals from certain retirement accounts can increase your overall income and may cause a larger portion of your Social Security benefits to become taxable.

Can you reduce taxes on Social Security benefits?

Depending on your situation, coordinating your retirement income and withdrawals may help you manage your overall tax situation and the portion of your Social Security benefits subject to tax.

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This content is developed from sources believed to be providing accurate information. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Evergreen Financial Group, LLC is a registered investment advisor offering advisory services in Montana, Utah, Wyoming and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. This communication is for informational purposes only and is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This communication should not be relied upon as the sole factor in an investment making decision. All opinions and estimates constitute Evergreen Financial Group’s judgement as of the date of this communication and are subject to change without notice. Evergreen Financial Group does not warrant that the information will be free from error. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk.