One of the reasons retirement planning is so difficult is that the income you rely on to cover your living costs is usually not all yours. If you have money in a traditional IRA or 401(k), you'll owe ordinary income taxes on those withdrawals, which could cost thousands of dollars per year.
Even Social Security benefits aren't wholly immune from taxation. If your income exceeds the following limits for your marital status, you could owe ordinary income tax on up to 85% of your checks.
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How Social Security benefit taxation works
Social Security benefit taxes have been around only since the 1980s, and they haven't changed much since then. The IRS looks at your marital status and your provisional income, which is your adjusted gross income (AGI), plus any nontaxable interest from municipal bonds, and half your annual Social Security benefit, to determine if you owe the government a cut of your checks.
The following table breaks down what percentage of your benefits could be taxable:
|
Marital Status |
0% of Benefits Taxable If Provisional Income Is Below: |
Up to 50% of Benefits Taxable If Provisional Income Is Between: |
Up to 85% of Benefits Taxable If Provisional Income Exceeds: |
|---|---|---|---|
|
Single |
$25,000 |
$25,000 and $34,000 |
$34,000 |
|
Married |
$32,000 |
$32,000 and $44,000 |
$44,000 |
Data source: Social Security Administration.
A few things to note about this: First, you will not have to give the government up to 85% of your benefits. The percentages above reflect the proportion of your benefits you will pay ordinary income taxes on. Your income tax rate will vary from 10% to 37%, depending on how much income you have from other sources. Most people fall toward the lower end of this scale.
Second, the thresholds above are not indexed for inflation. So even if you manage to avoid Social Security benefit taxes in 2026, you could encounter them in future years.
You could also face Social Security benefit taxes at the state level if you live in one of the eight states that still have them. Each has its own rules about who owes these taxes and how much they pay, so check with your state department of taxation to learn more.
How to avoid Social Security benefit taxes
You may be able to avoid Social Security benefit taxes by keeping your spending to a minimum. If you have a lot of Roth savings, you could also leverage these to reduce your tax bill. Withdrawals from these accounts are generally tax-free and do not affect your provisional income.
It's not always possible to avoid benefit taxes, though. If that's out of the question for you, you can either earmark savings for taxes on your own, or you can request that the Social Security Administration withhold money from your checks up front for taxes. If it withholds too much, you'll get the extra back as a refund when you file your tax return.
