Social Security (SS) retirement benefits and taxation are often misunderstood since not all benefits are taxable. The amount of benefits you can receive and how much Federal tax applies depend primarily on the income level of the receiver and other factors.
How to determine if benefits are taxable
If SS is one’s only source of income for the year, the benefits may not be taxable. However, if income is received from other sources, such as wages, self-employment, interest, dividends, etc., up to 85% of the benefits may be taxable.
In addition, it’s important to note that some states currently tax benefits: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
To determine if benefits are taxable, it is essential to calculate “combined income.” Combined income is the adjusted gross income, non-taxable interest, and half of one’s annual benefits. Note that depending on marital status, SS is taxed differently.
Social Security and taxes in 2025
The rules and regulations regarding SS and taxes can be complex and may change. Therefore, consulting with financial and tax professionals versed in SS retirement benefits and taxation is vital.
For single taxpayers- If income is between $25,000 and $34,000, income tax will apply to up to 50% of benefits. If income exceeds $34,000, up to 85% of the benefits may be taxable.
For married taxpayers filing jointly– If a married couple has a combined income of $32,000 to $44,000, they may have to pay income tax on about 50% of benefits. If joint income exceeds $44,000, up to 85% of benefits may be subject to taxation.
Despite the complexity of SS and taxes, these aspects are crucial to retirement income and tax planning throughout retirement. Understanding how retirement income and draw-down strategies, SS benefits, and taxes work together is vital to financial management in later life stages.
Consulting with Trajan financial professionals may help mitigate unexpected tax implications as part of a tax planning strategy. It’s as easy as starting with a conversation.
Sources:
