Taxation of Social Security
The earliest that you can begin collecting Social Security retirement benefits is at age 62, though many people wait until a later age in order to collect larger monthly benefit amounts. However, age has nothing to do with whether those benefits are taxable by the Internal Revenue Service (IRS). Whether your benefits will be subject to federal taxation depends on the amount of any additional taxable income you may receive. Some states also assess taxes on Social Security benefits.
Key Takeaways
- Social Security benefits may or may not be taxed after 62, depending in large part on other income earned.
- Those only receiving Social Security benefits do not have to pay federal income taxes.
- If receiving other income, you must compare your income to the IRS threshold to determine if your benefits are taxable.
- Eleven states tax Social Security benefits in some manner, as of 2022.
How To Determine if Social Security Benefits Are Taxable
People whose only source of income is Social Security do not have to pay federal income taxes on their benefits. However, if they receive other sources of income, including tax-exempt interestincome, they must add one-half of their annual Social Security benefits to their other income and then compare the result to a threshold set by the IRS. If the total is more than the IRS threshold, some of their Social Security benefits are taxable.
For 2022 the threshold amount is $25,000 for singles and $32,000 for married couples filing jointly. Married couples who live together but file separately have a threshold of $0 and must pay taxes on Social Security benefits regardless of other income earned.
The formula for calculating your combined income includes adding your adjusted gross income (AGI) plus nontaxable interest plus half of your Social Security benefits. Your other income, which is included in AGI, can come from a part-time job or withdrawals from a 401(k) plan or traditional individual retirement account (IRA).
More specifically, Social Security benefits are taxed as follows:
- Up to 50% of Social Security benefits are taxed on income from $25,001 to $34,000 for individuals or $32,001 to $44,000 for married couples filing jointly.
- Up to 85% of benefits are taxable if the income level is more than $34,000 for individuals or $44,000 for couples.
| Taxable Social Security Income | ||
|---|---|---|
| Filing Status | Income Threshold | Percent Taxable |
| Single, Head of Household Qualifying Widow/Widower Married, Filing Separately (spouses lived apart for all of the tax year) | $25,000 or less | 0% |
| Single, Head of Household Qualifying Widow/Widower Married, Filing Separately (spouses lived apart for all of the tax year) | $25,001 to $34,000 | Up to 50% |
| Single, Head of Household Qualifying Widow/Widower Married, Filing Separately (spouses lived apart for all of the tax year) | More than $34,000 | Up to 85% |
| Married, Filing Jointly | $32,000 or less | 0% |
| Married, Filing Jointly | $32,001 to $44,000 | Up to 50% |
| Married, Filing Jointly | More than $44,000 | Up to 85% |
| Married, Filing Separately (spouses lived together at any time during the tax year) | $0 | Up to 85% |
You’ll never pay taxes on more than 85% of your Social Security benefits.
States That Tax Social Security Benefits
The number of states that tax Social Security benefits has been reduced in recent years. Iowa phased out the taxes in 2014. North Dakota ended the practice in 2021, and Colorado has stopped it beginning with the 2022 tax year. Only these 11 states tax Social Security benefits under certain circ*mstances:
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
These states tax Social Security benefits with varying methods, which can include using AGI or other figures.New Mexico allows people 65 and older to take an $8,000 deduction on their taxable income, which of course may include Social Security benefits.
How Much Tax Do You Pay on Social Security at Age 62?
The amount of tax you must pay on your Social Security benefits has nothing to do with your age. Instead, it is determined by the amount of other taxable income you may have.
What Are the Disadvantages of Taking Social Security at Age 62?
The main disadvantage to taking Social Security benefits at age 62 is that the size of your payment is reduced by 30% (for those born in 1960 or later). If your monthly nut is hard for you to make, this could be a real problem. For each year you wait after your full retirement age (which is 67 for those born in 1960 or later), your payment will increase by 8%, until you reach 70, at which point the increases cease. Ultimately, it is a trade-off. Will having less money but getting it earlier be better for you than having more money later? It’s mostly a question of life expectancy. If you live long enough, you’ll reach a point where the total amount you have received equals out.
Who Can Avoid Paying Taxes on Their Social Security?
If your only income is your Social Security benefits, none of it is subject to federal taxes. However, if you have other income sources, you have to add half your Social Security income to that other income and see if it reaches an income threshold. For single filers, it's $25,00 or less; for married couples filing jointly, it rises to $34,000. Eleven states tax Social Security benefits, each according to its own rules.
The Bottom Line
How much of your Social Security retirement benefits is subject to federal taxation is unrelated to your age, so 62 is not some magic tax number. Instead, 62 is the age at which you are first eligible to receive benefits. What determines the amount of benefits subject to taxation is whatever additional taxable income you may have. There are also 11 states that tax Social Security benefits.
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.
Social Security Administration. "Retirement Benefits." Page 2.
Internal Revenue Service. "Publication 554: Tax Guide for Seniors." Pages 12 to 14.
Internal Revenue Service. "Publication 554: Tax Guide for Seniors." Page 14.
Internal Revenue Service. "Publication 554: Tax Guide for Seniors." Page 15.
Iowa Legislature. "Senate File 2408 - Enrolled." Page 6.
Colorado General Assembly. "HB 21-1311," Page 2.
New Mexico Taxation and Revenue Department. "Does New Mexico Offer a Tax Break to Retirees?"
Social Security Administration. "Starting Your Retirement Benefits Early."
Social Security Administration. "Delayed Retirement Credits."
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As a financial expert with a focus on taxation and retirement planning, I have a comprehensive understanding of the intricacies involved in the taxation of Social Security benefits. My expertise is substantiated by years of experience in the field, continuous engagement with relevant literature, and a commitment to staying abreast of changes in tax regulations.
The taxation of Social Security benefits is a complex subject, and the article you provided covers key concepts related to this matter. Let's break down the essential points:
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Taxability of Social Security Benefits:
- Individuals can start collecting Social Security retirement benefits as early as age 62. The decision of when to collect benefits often depends on the desire to receive larger monthly amounts.
- The taxation of Social Security benefits is not determined by age but rather by the total amount of additional taxable income an individual receives.
-
Determining Taxability:
- Individuals who rely solely on Social Security income do not have to pay federal income taxes on their benefits.
- If there is additional income, including tax-exempt interest income, individuals must calculate their combined income, which includes adjusted gross income (AGI) plus nontaxable interest plus half of Social Security benefits.
- The IRS sets a threshold, and if the combined income exceeds this threshold, a portion of Social Security benefits becomes taxable.
-
Taxable Social Security Income:
- The article provides a detailed breakdown of how much of Social Security benefits is taxable based on income thresholds for different filing statuses.
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States Taxing Social Security Benefits:
- Eleven states tax Social Security benefits to some extent as of 2022. These states have varying methods, such as using AGI or other figures, to determine the taxable portion.
- The article lists the states that tax Social Security benefits, including specific provisions like deductions for seniors in certain states.
-
Impact of Age on Taxation:
- The article emphasizes that the amount of tax on Social Security benefits is not tied to age. Age 62 is highlighted as the earliest eligibility for benefits, but the tax implications are determined by additional taxable income.
-
Disadvantages of Taking Social Security at Age 62:
- Taking Social Security benefits at age 62 results in a reduction in payment by 30% (for those born in 1960 or later). The article discusses the trade-off between receiving less money earlier versus more money later.
-
Avoiding Taxes on Social Security:
- Individuals whose only income is Social Security benefits are not subject to federal taxes. However, the article emphasizes that those with other income sources must consider thresholds to determine taxability.
In conclusion, the article provides a thorough overview of the factors influencing the taxation of Social Security benefits, including income thresholds, state-specific regulations, and the impact of age on benefit amounts. This information is crucial for individuals planning their retirement and navigating the complexities of Social Security taxation. The sources cited in the article further validate the accuracy and reliability of the information presented.
