Are Social Security benefits subject to taxation? Yes. Many people are unaware of this, but Social Security income may be subject to federal, and possibly even state, taxation.
How is Social Security taxed? Federal taxation does not apply to all Social Security beneficiaries as there is a special formula used to determine if your Social Security income will be taxed. If your “combined income” exceeds a specific threshold, a portion (up to 85%) of your Social Security income will be taxed. These thresholds vary depending if you are a single filer or joint filer.
What are the thresholds that determine if your Social Security will be taxed? Up to 50 percent of your Social Security benefits are subject to federal taxation if your income is $25,000 to $34,000 for an individual or $32,000 to $44,000 for a married couple filing jointly. Up to 85 percent of your benefits are subject to federal taxation if your income is more than $34,000 for a single filer or $44,000 for joint filers.
Which states tax Social Security income? Thirteen states currently have a Social Security income tax and these states are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, North Dakota, Vermont, Utah and West Virginia. Some of these states use the same calculation as the federal government to determine if single or joint filers owe taxes. Some states have their own rules and regulations. West Virginia may soon eliminate its state tax.
Learn more about the taxation of Social Security here.