Social Security Benefits May Be Subject To Taxation

Pamela Kweller RSSA Staff


The 2023 tax filing season has officially begun and the IRS is now accepting and processing 2022 tax year returns.

When considering taxes, it is not uncommon for individuals to overlook the potential taxation of their Social Security income. However, it is important to be aware that a portion of Social Security benefits may be subject to taxes. To help you better understand the taxation of Social Security benefits, here are three key points to keep in mind:

1. Social Security income may be subject to federal taxation.

Some refer to this as the Social Security “stealth” tax because it is common for people to be unaware of this tax, having it sneak up on them when they find out they owe taxes.

For almost 50 years after President Franklin D. Roosevelt signed the Social Security Act (in 1935), Social Security was not a source of income subject to federal taxation. However, in 1983 the Bipartisan agreement made significant changes to the Social Security program including the change that a portion of Social Security benefits could be federally taxed.

There is a special formula used to determine if your Social Security income will be taxed. If your “combined income” or “provisional income” exceeds a specific threshold, a portion (up to 85%) of your Social Security income will be taxed. These thresholds vary depending on if you are a single filer or joint filer. The portion of social security income that is considered “taxable” is then added to the rest of your income when determining your total adjusted gross income.

Learn more about Social Security and federal taxation here.

2. Social Security income may also be subject to state taxation.

Currently, there are some states where your Social Security income may be subject to taxation. These states include Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

It’s worth noting that not all of these states tax Social Security benefits in the same way. Some of these states use the same calculation as the federal government to determine if single or joint filers owe taxes. While some states have their own rules and regulations with different income thresholds and tax rates. It’s important to check with the state where you reside for more information on how Social Security benefits are taxed in your state. Do not assume you will owe taxes just because you live in one of these states.

3. Check your mail for your Social Security 1099 (SSA-1099) form.

Each January, the Social Security Administration mails out tax forms to Social Security beneficiaries. This form is called SSA-1099 and it details the total amount of Social Security benefits you received in the previous year, so you know how much to report to the IRS on your tax return.

It’s important to keep in mind that you should report all of your Social Security benefits as income on your federal tax return, whether or not you receive a SSA-1099 form. You can also receive a copy of this form online through your my Social Security account.

Taxation is only one aspect to consider when planning for Social Security and retirement. Whether you live in one of the states mentioned above or not, it is still important for you to plan your retirement and to make the optimal Social Security filing decisions. Understanding who gets taxed and how it is calculated is an important step in your retirement planning process. Working with a professional, like an RSSA, can help you plan, prepare, and prevent yourself from being caught off guard with unexpected taxes.



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