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  • Writer's pictureW. Scott Hurt, CFP®, CPA

How Social Security Is Taxed

Updated: Feb 24, 2023

Social Security is an essential component of retirement income and it can comprise a significant portion of your cash flow.

The Social Security Administration (SSA) estimates benefits replace about 40% of pre-retirement income, making it an integral cash flow planning resource.

But all good things come with a cost.

What cost do you have to consider with Social Security?


So, how is social security taxed?

The answer not only tells you how much of your Social Security check you get to keep but is itself a planning factor since there are strategies to help reduce taxes on your benefits.

Keep reading to learn about the different tax components of social security.

When Will Your Benefits Be Taxed? (And By How Much)

You are subject to federal income taxes on your Social Security retirement, disability, and other benefits as soon as you start receiving them. But not all of your benefits are taxable. This area can get a bit more confusing. Your benefits are taxed as income—but you’re only responsible for the portion of your income the SSA deems taxable.

So how much of your social security benefits does the IRS consider taxable?

It depends on your other income sources. But the income thresholds for taxing Social Security benefits are relatively low.

Do you and your spouse make more than $32,000 combined?

If so, you will likely pay tax on some of your Social Security income. Most filers need to pay tax on benefits if they have multiple retirement income channels like a 401k, traditional IRA, Roth IRA, pension, real estate, earned income, and other investments.

From a federal tax perspective, up to 85% of your benefits may be taxable. Some states also levy state taxes on Social Security income, but Virginia isn’t one of them.

There are only 13 states that tax Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.

We’ll look specifically at how your income is calculated in the next section, but for now, it’s helpful to absorb the basic idea that a portion of your benefits are taxed based on your sources of income.

Retirees, understanding the fundamentals allows you to draw a critical connection: the importance of reducing your taxable income in retirement. There are planning decisions to reduce your income calculation to determine your Social Security taxes without reducing your actual income.

To get started, plan ahead for what your tax bill might look like in retirement based on all of your income sources, including Social Security. Doing so helps you make choices now that can lower your taxes and avoid unexpected tax bills come tax season!

How Does The Social Security Administration Calculate Your Income?

Before we look at the formula, understand that it is somewhat complicated to calculate how much of your Social Security is taxable. We recommend using a reliable online calculator through a reputable source or contact your accountant to help you. You can also get a rough estimation by filling out an SSA worksheet.

So how is your income calculated? The Social Security Administration uses a figure they call your “Combined Income.” Your combined income is a combination of:

  • Your Adjusted Gross Income

  • ½ of your Social Security benefit

  • Nontaxable interest such as the interest you receive from municipal bonds.

As an example, say your AGI (which you get from your tax return) is $75,000 and you receive $2,000 in tax exempt interest. You also get a Social Security benefit of $24,000. Your “Combined Income” is 75,000 + 2,000 + 12,000 = $89,000.

So, how is that number used to figure out how much of your benefit is taxable? Assuming you're married filing jointly for the 2021 tax year if your combined income is:

  • Between $32,000 and $44,000, you may have to pay income tax on up to half of your social security benefits.

  • More than $44,000, up to 85 percent of your benefits may be taxable.

In this example, your benefits are 85% taxable. Note that if your combined income is below the lower threshold of $32,000, then your benefits are not taxable. Your filing status influences these thresholds.

Remember that your AGI in retirement is a function of how you take withdrawals from your accounts. You can actively influence it by being deliberate with your savings, thereby reducing taxes in retirement.

For example, withdrawals from a Roth account do not count toward your AGI, while withdrawals from traditional tax-deferred accounts do.

Roth conversions, taking partial withdrawals from different account types, and keeping some of your savings in a taxable account are great ways to reduce your future AGI.

The bottom line is that effectively managing your income (tax bracket and tax rate) can help reduce the taxable portion of your Social Security benefits.

Are Spousal and Survivor Benefits Taxed?

As you are likely aware, there are more benefits associated with Social Security than simply individual retirement benefits, like spousal and survivor benefits.

Are these benefits taxable as well?


Spousal and survivor, as well as disability benefits, follow the same tax rules as your own benefits do.

There is a technicality to bear in mind.

When a surviving child collects Social Security benefits, those checks are taxable to them. In most cases, a minor child would not have much (if any) other income, so the formula often results in none of the benefits being taxable.

How To Factor Social Security Income Tax Into Your Financial Plan

You may not have a ton of control over how your Social Security is taxed. For many taxpayers, and most of our clients, taxation of Social Security benefits is unavoidable, especially if you and/or your spouse have a sizable pension. This is also true later in life when you start to have larger required minimum distributions from IRAs and other retirement accounts. However, you won't know unless you specifically consider it in your plan.

Social Security plays an important role in your retirement plan, so maximizing every dollar you can is only a good thing.

Factor Social Security taxes into your retirement income plan and see if you can insulate other areas with tax-efficient measures like maximizing Roth accounts, asset location, tax-loss harvesting, or other ways to reduce your AGI.

Contact us to see if we can help you reduce the taxes on your Social Security benefits as part of a comprehensive retirement income plan.

We're passionate about proactive tax planning at Covenant Wealth Advisors and will work with you and your tax professional to create a plan that maximizes every dollar possible.



Founded in 2010, Covenant Wealth Advisors is a fee-only financial planning and investment management firm located in Richmond and Williamsburg, VA. We specialize in helping individuals age 50 plus design, execute, and protect a personalized financial plan for retirement. Contact us to see how we can help you enjoy retirement without the stress of money.

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The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.


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