How Social Security Is Taxed in Retirement
Summary: Social Security Tax Questions Answered
| Topic | Key Details | Jump To |
|---|---|---|
| Why Are Benefits Taxed? | History and policy context | View |
| How Are Benefits Taxed? | Provisional income and IRS thresholds | View |
| 2025 Tax Thresholds | Up to 85% taxable depending on income | View |
| State Taxation | List of states that tax benefits | View |
| How Work Affects Benefits | Earned income and reductions | View |
| Tax Minimization Strategies | Withdrawals, Roth IRAs, annuities | View |
| Helpful Resources | IRS links and further reading | View |
Many retirees are surprised to learn that a portion of their Social Security benefits can be taxed. The amount you pay depends on your total retirement income. Knowing the current IRS rules can help you better plan for your after-tax income.
• Wages and taxable income
• 50% of Social Security benefits
• Tax-exempt municipal bond interest
• Pensions and annuity payments
(Used by the IRS to determine how much of your Social Security may be taxed.)
Why Are Social Security Benefits Taxed?
Social Security benefits were once tax-free, but in 1984, Congress introduced taxation to help fund the program. Today, up to 85% of your benefits can be subject to federal taxes if your income exceeds certain thresholds. Some of these funds also help support Medicare.
How Social Security Benefits Are Taxed
To determine how much of your Social Security benefits are taxable, you’ll first need to calculate your provisional income. This formula includes:
- Your adjusted gross income (including wages, investment income, rental income, pensions, annuities, and other taxable income except Social Security)
- Half of your Social Security benefits
- Any tax-exempt interest from municipal bonds
If you’re married and file jointly, you must combine both spouses’ incomes and benefits. Even if one spouse didn’t earn Social Security, both counts are included in the calculation.
2025 Social Security Tax Thresholds
| Filing Status | Provisional Income Range | Portion of Benefits Taxable |
|---|---|---|
| Single / Head of Household / Qualifying Surviving Spouse | Below $25,000 | 0% |
| Single / Head of Household / Qualifying Surviving Spouse | $25,000 – $34,000 | Up to 50% |
| Single / Head of Household / Qualifying Surviving Spouse | Above $34,000 | Up to 85% |
| Married Filing Jointly | Below $32,000 | 0% |
| Married Filing Jointly | $32,000 – $44,000 | Up to 50% |
| Married Filing Jointly | Above $44,000 | Up to 85% |
Source: IRS 2025 Social Security Taxation Guidelines
Do States Tax Social Security Benefits?
Most states do not tax Social Security benefits, but a handful still do. For 2025, the following states may tax Social Security income:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia (phasing out)
Each state has unique rules and exemptions—check your state’s tax authority or ask Foxcove Financial for state-specific guidance.
How Work and Other Income Can Affect Your Social Security
Choosing to work longer, start a business, or take on a second career in retirement can impact your Social Security benefits in two ways:
- Benefit Reductions Before Full Retirement Age: If you collect Social Security before reaching Full Retirement Age (FRA), your benefits may be reduced if your earned income exceeds certain limits. In 2025, for every $2 earned over $22,320, $1 in benefits is withheld. In the year you reach FRA, the limit rises to $59,520, and $1 is withheld for every $3 earned above this threshold, until the month you reach FRA.
- Tax Implications: Additional income can increase your provisional income, potentially making more of your Social Security benefits taxable.
If you delay claiming until after Full Retirement Age, there’s no reduction for working, and your benefit may increase through delayed retirement credits.
Strategies to Minimize Taxes on Social Security Benefits
You may be able to reduce how much of your Social Security is taxed by managing your total retirement income. Consider the following:
- Spread retirement withdrawals over several years to avoid income spikes
- Utilize Roth IRA distributions, which are not included in provisional income
- Carefully time investment sales and required minimum distributions
- Consider tax-efficient income sources such as certain annuities or life insurance products
For questions about your personal tax situation, be sure to consult your CPA.
Key Takeaways
- Up to 85% of Social Security benefits may be taxable based on your income.
- Most states do not tax Social Security, but a few still do—always check state rules.
- Managing other sources of income, including withdrawals from retirement accounts, can help reduce the tax bite.
- Strategic use of Roth IRAs and annuities can provide more control over your taxable income in retirement.
Additional Resources
IRS Publication 915: Social Security and Equivalent Railroad Retirement Benefits
Looking for Guidance?
If you’re ready to take the next step in planning your retirement with confidence, Foxcove Financial is here to help. We’ll walk you through your options, answer your questions, and help you evaluate solutions that align with your long-term goals. We specialize in insured strategies designed to protect and grow your retirement income. Call us at 609.807.8502 or schedule an appointment.