About 40% of recipients have to pay income taxes on their Social Security benefits, according to the Social Security administration.¹ Whether your benefits are taxable depends on your income level and whether you have other sources of retirement income, such as a part-time job or distributions from a retirement plan. But if your only source of income in retirement is your Social Security benefits, you probably won’t pay taxes.

The quick way to tell if you’re likely to owe taxes on your Social Security income: Take half of your annual Social Security benefits and add that to all your other income. This figure––your adjusted gross income + nontaxable interest + half of your Social Security benefits––is known as your “combined income.”

If your combined income is above the following annual limits for 2018, you may have to pay some income taxes on it.

Your tax filing status	Individual, head of household	Married couples filing jointly
You’re unlikely to owe taxes on your Social Security benefits if they are your only source of income or if your annual combined income is	Below $25,000	Below $32,000
You may owe income taxes on up to 50% of your Social Security benefits if your annual combined income is	$25,000 – $34,000	$32,000 – $44,000
You could owe income taxes on up to 85% of your Social Security benefits if your annual combined income is	Above $34,000	Above $44,000

Source: Social Security Administration, Retirement Benefits, 2019, p.12 https://www.ssa.gov/pubs/EN-05-10035.pdf

Two scenarios

The average Social Security monthly benefit for retirees was $1,413.37 in June 2018, or $16,960 annually.² To see what a hypothetical average single filer’s tax situation might look like, let’s round that up to $17,000. Half of that is $8,500. Let’s assume that your combined income is $30,000, which would be $5,000 more than the $25,000 threshold for single filers. You’d pay income taxes on half of that $5,000, or $2,500, just a fraction of your $17,000 in annual Social Security benefits.

Now let’s bump those figures a bit higher in a second illustration. Consider a single filer who receives $25,000 in annual Social Security benefits and has a combined income of $40,000. Based on calculations using the IRS Publication 915 worksheet,³ you’d have $9,600 in taxable benefits of your total $25,000 in Social Security benefits.

How to pay your taxes

If you expect to be taxed on your Social Security benefits, rather than pay it all in one lump sum when you file your income tax forms for the year, you can do one of two things:

1. Fill out Form W-4V, Voluntary Withholding Request, which you can obtain online at https://www.irs.gov/pub/irs-pdf/fw4v.pdf or call the IRS toll-free at 1-800-829-3676. On the simple form, you can choose to have the IRS withhold 7%, 10%, 12% or 22% of your monthly benefits check, and you can adjust that amount at any time.
2. You can make quarterly estimated tax payments to the IRS.

Don’t forget state taxes

On top of the federal taxes owed, residents in these 13 states will also have to pay state taxes on Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.⁴

Only residents of Minnesota, North Dakota, Vermont, and West Virginia would pay the state’s regular income tax rates on all taxable benefits; the remaining nine states offer age- or income-based deductions or exemptions.⁵

You can learn more about the taxation of your benefits on the Social Security Administration website: https://www.ssa.gov/planners/taxes.html

As always, consult with your tax professional on your personal taxes.

Learn more about tax and estate planning.

1. https://www.ssa.gov/pubs/EN-05-10035.pdf
2. https://money.usnews.com/money/retirement/social-security/articles/2018-08-20/how-much-you-will-get-from-social-security
3. https://www.irs.gov/pub/irs-pdf/p915.pdf, page 16
4. https://www.fool.com/retirement/2017/12/06/13-states-that-tax-social-security-income.aspx
5. https://smartasset.com/retirement/is-social-security-income-taxable