Are My Social Security Benefits Taxable?

For years you’ve seen your paycheck take a hit for social security contributions.  Now you are retiring, and it’s finally your turn to be on the receiving end.  But will your social security benefits be taxable? 

The answer is “probably.”  The reason for the imprecise answer is that the taxable amount of your social security benefits is dependent on how much other income you have.  The formula is by no means straightforward, and often the taxability of benefits catches some folks by surprise.   

If you are married and your “provisional income”, which is your adjusted gross income plus tax-exempt income less half of your social security income, is $32,000 or less ($25,000 or less for most singles), you won’t pay any tax on your social security benefits. 

If your provisional income is between $32,000 and $44,000 for joint, or between $25,000 and $34,000 for singles and heads of households, up to 50% of your social security income will be taxable, based on a sliding scale.  If your provisional income is above the higher end of these ranges, the percentage of your taxable benefits will increase until 85% are taxed – that is the maximum.  You can find a worksheet that calculates the exact includable amount on the IRS website. 

As your income goes up, so does the taxable percentage of social security benefits.  This sometimes leads to surprises when a taxpayer has a one-time income item, such as an unusual IRA withdrawal or a gain on a stock sale.  This effectively increases the tax rate on the additional income because you are adding otherwise untaxed social security benefits to your taxable income in addition to the one-time item. 

The Social Security Administration will withhold federal income tax on your benefits If you ask them to.  You have to pick from one of four percentages:  7%, 10%, 12%, or 22%.  As for state tax, in Indiana and most other states, social security benefits are not taxable. 

If you are concerned about how much of your social security is taxable, your DWD accountant can help. 

Contributed By: Mark Westerhausen, CPA | Director | DWD CPAs & Advisors