Do You Have to Pay Federal & State Tax on SS Retirement Benefits?

People entering their retirement years count on Social Security retirement benefits as part of their retirement income stream. But your Social Security retirement benefits may be taxed by both the federal government and your state government. Federal taxation of Social Security will depend on how much income you made from other sources and your filing status. State taxation will depend on the state where you live. You can have federal income taxes withheld from your benefit or make quarterly payments.

Federal Taxation

If your only retirement income is your Social Security benefit, you won’t owe federal income tax on it. But if you have other substantial income from wages, self-employment, interest, dividends and taxable retirement plan distributions, you may owe federal income tax on up to 85 percent of your Social Security retirement benefit. Under Internal Revenue Service rules, no one pays tax on more than 85 percent of their Social Security benefit.

Income Scale

Social Security retirement benefits are taxed based on your “combined” income. If you are single, your benefit won’t be taxed if combined income for 2012 is below $25,000. For incomes over $25,000 the amount of Social Security income that will be taxable starts at 50 percent, increasing gradually to a maximum of 85 percent for incomes over $34,000. For joint filers, benefits won’t be taxed if joint combined income is below $32,000. Between 50 percent and 84 percent is taxed for income between $32,000 and $44,000, and 85 percent is taxed when combined income exceeds $44,000. For married people filing separately, 85 percent of their Social Security benefit is taxed regardless of income.

Calculating Combined Income

Combined income is based on your benefit from Social Security combined with your income from other sources. You figure your combined income by taking your federal adjusted gross income, adding any tax-exempt interest you earned, and then adding one-half of your annual Social Security benefit. For example, if your Social Security benefit was $14,400, your income from other sources was $30,000 and you had $1,200 in nontaxable interest, you would add $30,000 plus $1,200 plus $7,200 to get a combined income of $38,400. With this amount, a single filer would pay tax on 85 percent of his benefits while a married couple filing jointly would pay tax on 66 percent of their benefits.

State Taxation

As of 2010, 37 states and the District of Columbia didn’t tax Social Security retirement benefits. Of the remainder, Connecticut, Minnesota, Nebraska, North Dakota, Rhode Island, Utah, Vermont and West Virginia taxed the same percentage of Social Security benefits as the federal government. Colorado, Kansas, Missouri and Montana taxed Social Security benefits if income exceeded state-specific ceilings. Iowa taxed 45 percent of Social Security benefits but will end Social Security benefit taxation after 2013. Social Security does not withhold state income taxes.

Photo Credits

  • tax love image by TEMISTOCLE LUCARELLI from

About the Author

Herb Kirchhoff has more than three decades of hands-on experience as an avid garden hobbyist and home handyman. Since retiring from the news business in 2008, Kirchhoff takes care of a 12-acre rural Michigan lakefront property and applies his experience to his vegetable and flower gardens and home repair and renovation projects.

Zacks Investment Research

is an A+ Rated BBB

Accredited Business.