How Social Security Benefits Are Taxed

Many retirees are surprised to learn that part of their Social Security can be taxable on the federal return. Whether it is depends on your other income, not on how much you paid into the system. The formulas use fixed dollar amounts that are not adjusted for inflation, so more retirees are affected each year. This guide shows how the rules work and how to estimate your own result.

The base amounts

Your base amount depends on filing status. These amounts apply for 2025 and are the same for 2026, because they are not indexed.

If you are married and file jointly, you add your spouse's income and benefits to yours, even if your spouse does not receive benefits.

How to find your combined income

Add together:

1. Half of your Social Security benefits (the net amount in box 5 of Form SSA-1099).
2. All of your other income, such as wages, pensions, IRA withdrawals, interest, dividends, capital gains and rental income.
3. Tax-exempt interest, such as municipal bond interest.

Qualified distributions from a Roth IRA are not included, and neither are the new deductions for tips, overtime, car loans and seniors, which are taken after adjusted gross income. Compare the total with your base amount. If it is at or below the base amount, none of your benefits are taxable. If it is above, part of the benefits are taxable, up to the 50% or 85% maximum.

The IRS publishes worksheets for the exact calculation. They are in the Form 1040 instructions and in Publication 915.

Example 1

A single retiree receives $24,000 in Social Security and $22,000 in taxable pension income. Combined income is $12,000 (half of benefits) + $22,000 = $34,000. That is $9,000 above the $25,000 base amount. The taxable part of the benefits is the smaller of half the benefits ($12,000) or half the excess ($4,500), so $4,500 of the benefits is taxable.

Example 2

A single retiree receives $30,000 in Social Security and has $50,000 of other income, for combined income of $65,000. This is well above $34,000. Under the IRS worksheet, 85% of the benefits, or $25,500, is taxable. The rest, $4,500, is not.

Where the maximum applies

At most 85% of your benefits are ever taxable. That does not mean an 85% tax rate. It means up to 85% of the benefit is added to taxable income and taxed at your ordinary rates. Some retirees see a high effective rate on extra income in the range where each additional dollar of income also causes more of their benefits to become taxable.

Reporting and withholding

You report the total benefits on Form 1040, line 6a, and the taxable part on line 6b. Social Security sends Form SSA-1099 each January. You can choose to have federal income tax withheld from your benefits by filing Form W-4V. If you do not, you may need to pay estimated tax or increase withholding from other income.

Planning points

• Know your sources. IRA withdrawals, pension payments and capital gains increase combined income. Qualified Roth withdrawals do not.
• Think before a conversion. A Roth conversion adds to income in the year of conversion and may make more of your benefits taxable that year.
• Qualified charitable distributions. A direct IRA-to-charity transfer is not included in income, which can keep combined income lower. See charitable giving.
• Timing gains. Selling investments over two years instead of one can reduce the amount of benefits taxed.
• Senior deduction. The enhanced deduction for people 65 and older reduces taxable income but not combined income. See new deductions for tips, overtime and seniors.

Nonresident aliens and benefits paid abroad

The rules above apply to U.S. citizens and resident aliens, including green card holders. Nonresident aliens generally have 85% of their benefits taxed at a flat 30% rate, unless a treaty provides an exemption or lower rate. The IRS lists several countries whose residents are exempt. For India, Publication 915 says benefits paid to individuals who are both residents and nationals of India are exempt from U.S. tax only if the benefits are for services performed for the United States or its governments. Green card holders living abroad should not have the 30% withholding applied. See our guide to the US-India tax treaty.

Illinois

Illinois allows you to subtract the federally taxed amount of Social Security and retirement income from IRAs and pensions on your Illinois return, according to the Illinois Department of Revenue. That means Social Security benefits are not taxed by Illinois. Many other states do tax benefits or follow different rules. See our Illinois guide.

How we can help

We estimate how much of your benefits will be taxable, coordinate withdrawals and conversions, and set up withholding or estimates. See our page for seniors and retirees, or contact us.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.