Most people do not pay Social Security tax on their benefits, but some do
Whether you owe Social Security tax on the benefits you receive depends on your total income for the year. If Social Security is your only income, you will not owe Social Security tax on it. But if you have other income — from a job, self-employment, pensions, or investments — a portion of your benefits may become taxable.
The Combined Income Test is what the IRS uses to decide this. They add your adjusted gross income, any non-taxable interest, and half of your Social Security benefits. If that total exceeds a certain threshold, you may owe income tax (not Social Security tax) on up to 85 percent of your benefits. The thresholds are $25,000 for single filers and $32,000 for married couples filing jointly, and they have not changed since 1984.
This is a common source of confusion: you are not paying Social Security tax itself on your benefits. You are paying regular income tax on a portion of them if your income is high enough. Social Security tax is only withheld from wages you earn from work.
Key Takeaways
- Social Security tax (the 6.2 percent withheld from paychecks) only applies to wages from employment, never to the benefits you receive.
- You may owe regular income tax on your benefits if your combined income exceeds $25,000 (single) or $32,000 (married filing jointly).
- Combined income includes your adjusted gross income, non-taxable interest, and half your Social Security benefits added together.
- If you expect to owe tax on your benefits, you can request voluntary withholding from your benefit payments to avoid a large bill at tax time.
How the Combined Income Test works
The Combined Income Test adds three things together: your adjusted gross income (wages, self-employment income, pensions, and taxable interest), any non-taxable interest (such as from municipal bonds), and half of your Social Security benefits for the year.
If you are single and that total is between $25,000 and $34,000, you may owe income tax on up to 50 percent of your benefits. If it exceeds $34,000, you may owe tax on up to 85 percent of your benefits. For married couples filing jointly, the ranges are $32,000 to $44,000 (up to 50 percent taxable) and over $44,000 (up to 85 percent taxable).
The actual amount of tax you owe depends on your tax bracket and how much of your benefits fall into the taxable range. A tax professional or tax software can calculate this precisely, but the IRS also publishes a worksheet in Publication 915 that walks through the math step by step.
Why some retirees end up with taxable benefits
If you retired early and are still working part-time, or if you have a pension from a government job that did not withhold Social Security tax, your combined income may cross the threshold. Rental income, investment gains, and withdrawals from traditional IRAs or 401(k)s all count toward combined income.
Many people are surprised to learn that their spouse's income counts too, even if they file separately. Married couples filing separately face an even lower threshold: any combined income over $0 can trigger taxation of benefits. This is one reason married couples are usually better off filing jointly.
The thresholds have not moved since 1984, so inflation has pushed more middle-income retirees into the taxable range over time. Someone with $25,000 in combined income in 1984 would need roughly $70,000 today to have the same purchasing power, but the threshold stayed at $25,000.
How to request withholding on your benefits
If you know your benefits will be taxable, you can ask Social Security to withhold federal income tax from your monthly payments. This works the same way withholding does on a paycheck: money is held back each month and sent to the IRS, reducing what you owe at tax time.
To set up withholding, complete Form W-4V (Voluntary Withholding Request) and submit it to your local Social Security office, mail it to Social Security, or upload it through your my Social Security account online. You can choose to withhold 7, 10, 12, or 22 percent of your benefit amount, or you can specify a flat dollar amount.
You can change or stop withholding at any time by submitting a new Form W-4V. Many people adjust their withholding after their first year of benefits, once they see how much tax they actually owe.
Self-employment income and Social Security tax
If you are self-employed and receiving Social Security benefits, you still owe the full 15.3 percent self-employment tax (12.4 percent for Social Security and 2.9 percent for Medicare) on your net self-employment income. This is separate from whether your benefits themselves are taxable for income tax purposes.
Self-employment income counts toward your combined income total, which may push your benefits into the taxable range. So a self-employed person might owe both self-employment tax on their business income and income tax on a portion of their benefits.
If you are still working and under your full retirement age, Social Security also reduces your benefits by $1 for every $2 you earn above an annual limit (the limit changes yearly). This is a separate reduction from taxation and happens regardless of your total income.
What happens if you do not withhold and owe tax
If you do not request withholding and your benefits turn out to be taxable, you will owe the tax when you file your return. You can pay it in full with your return, or if you owe more than $1,000, you may be able to set up a payment plan with the IRS.
If you consistently underpay, the IRS may assess penalties and interest. Requesting withholding upfront is usually simpler than dealing with a tax bill or payment plan later. Even if you are not sure whether your benefits will be taxable, erring on the side of withholding a small amount is often the safer choice.
Some people also make estimated tax payments throughout the year if they have other income sources. If you do this, you can include your expected benefit taxation in your estimated payments instead of requesting withholding from Social Security itself.
State income tax on Social Security benefits
Most states do not tax Social Security benefits, but a handful do. Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont all tax some or all of Social Security income, though most offer exemptions or deductions that reduce or eliminate the tax for most retirees.
The rules vary by state. Some states use the same combined income thresholds as the federal government; others have their own rules. A few states tax benefits but offer a credit or exemption based on age or income level. If you live in one of these states, check your state tax return instructions or contact your state tax agency to understand how your benefits are treated.
If you move to a different state after you start receiving benefits, your state tax situation may change. This is worth considering if you are planning a move in retirement.
Frequently Asked Questions
Do I have to pay Social Security tax on my benefits?
No. Social Security tax (the 6.2 percent withheld from paychecks) only applies to wages you earn from work. You may owe regular income tax on a portion of your benefits if your combined income is high enough, but that is different from Social Security tax.
What if I am still working and receiving benefits?
Your work income counts toward the combined income test, which may make your benefits taxable. You also owe Social Security tax on your wages. Additionally, if you are under your full retirement age, Social Security reduces your benefits by $1 for every $2 you earn above an annual limit.
Can I avoid paying tax on my benefits?
If your combined income is below the threshold for your filing status, your benefits are not taxable. If it exceeds the threshold, you cannot avoid the tax, but you can request withholding from your benefit payments to spread the tax burden across the year instead of owing it all at once.
How do I know if my benefits will be taxable?
Add your adjusted gross income, any non-taxable interest, and half your Social Security benefits. If the total exceeds $25,000 (single) or $32,000 (married filing jointly), some of your benefits may be taxable. Publication 915 from the IRS includes a worksheet to calculate the exact amount.
What if I have a pension and Social Security?
Your pension counts as part of your combined income. If the pension plus half your benefits plus any other income exceeds the threshold, your benefits become taxable. Government pensions that did not withhold Social Security tax are particularly likely to push you over the limit.