If you receive Social Security benefits, you may or may not have to pay federal income taxes on the payments. While the IRS and Social Security might seem to go hand in hand because Social Security benefits are a source of income paid by the government, your benefits may not be taxed at all, and if they are, they're not taxed to the full extent of what you receive.
Social Security benefits may be considered taxable income if you have income from other sources, such as a part-time job or a retirement account. Even then, you're not taxed on the full amount of your Social Security check. If your benefits are actually SSI benefits, they aren't taxable at all.
What Is Social Security?
Social Security is a government program enacted in 1935 in the wake of the Great Depression to assist working people with their expenses after retirement. The program has evolved over the decades into the system currently in place. Individuals who work and pay taxes also must pay Social Security tax, which is used to fund the program. People working now are paying into Social Security so that when the current workforce retires, benefits will be available. Social Security beneficiaries receive their benefits monthly, either by mail or by direct deposit.
What Are the Different Types of Social Security Benefits?
Social Security benefits come in several different types. There are regular Social Security benefits, which are for retirement; Social Security disability benefits, which are to help support people who can't work full time due to a disability; Social Security death benefits, which are the benefits paid out to the family of someone who had been paying into the system but passed away and Supplemental Security Income (SSI), which isn't actually Social Security at all.
Social Security for Retirement
Once you reach a certain age, you can start collecting regular Social Security benefits. You can start collecting as early as age 62; however, to receive your full benefit, you must reach "full retirement age," which is 65 for people born before 1938 and gradually increases to 67 for people born after 1959. If you retire before you reach the full retirement age, your benefits will be less, but you can't collect these benefits before the age of 62 in any event.
Social Security Disability
Social Security disability is available to individuals who have been working and paying Social Security taxes and then become disabled before they reach retirement age. To qualify, you must have a qualifying disability and have worked long enough and recently enough. If you get Social Security disability, once you reach the full retirement age, your benefit converts to retirement disability, but the amount stays the same.
Social Security Death Benefits
The Social Security program also provides benefits to the families of deceased individuals who worked and paid Social Security taxes. Like disability benefits, survivor benefits depend upon whether the deceased person worked long enough. These benefits are available to the deceased person's surviving spouse and any children who are either under the age of 18 or who are over 18 but under 22 and are disabled. In some circumstances, the deceased person's ex-spouse may be able to receive survivor benefits.
Supplemental Security Income (SSI)
Supplemental Security Income is a program administered by the Social Security Administration, but it is not a Social Security benefit as many people think. Instead, it's a separate program that provides benefits to disabled adults and children with low income and limited resources, and to nondisabled individuals over the age of 65 who meet certain income requirements. SSI is intended to assist people who don't qualify for Social Security or who don't receive enough, but who also can't work or who make too little income to support themselves.
When Social Security Income Is Subject to Taxation
If Social Security is your only source of income, it generally isn't taxable. SSI is also not taxable income. However, if you receive income in addition to Social Security, a portion of your Social Security may be considered taxable income. To determine whether your benefits are taxable, you add up your adjusted gross income, any nontaxable interest income and half of your Social Security benefits. If the amount is between $25,000 and $34,000 for a single person (or between $32,000 and $44,000 for a married couple filing jointly), you will be taxed on 50 percent of your Social Security benefits. If the sum is greater than $34,000 for a single person or $44,000 for a married couple, you can be taxed on up to 85 percent of your benefit (but at least 15 percent of your Social Security benefits will always be nontaxable). These amounts apply to retirement benefits, disability benefits and survivor benefits alike.
Paying the Taxes on Social Security Benefits
You can opt to have taxes taken directly from your Social Security before it's paid to you, just as you would with a paycheck. You can also choose to receive the full benefit amount and make quarterly payments to the IRS on your own. Many people elect to have the taxes taken out directly, as saving up to pay taxes can be difficult.
Taxes on Social Security Illustrated
For example, if you're single and you receive $12,000 per year in Social Security benefits, plus you have $25,000 per year in adjusted gross income, you must add that $25,000 to half your Social Security benefits ($6,000), which totals $31,000. This means that $6,000 of your Social Security benefit will be taxed as income.
If you're single and you receiving Social Security benefits because you've reached full retirement age, and your benefits total is $12,000 per year but you make $500,000 per year in other income, you'll be taxed on 85 percent of your Social Security benefits, or $10,200. The remaining $1,800 will not be taxable.
The Taxable Portion of Social Security Is Taxed as Ordinary Income
If you do make enough money from other sources (including a job or retirement account distributions) so that you must pay tax on a portion of your Social Security, you'll be taxed on the benefits as ordinary income. The percentage of tax will depend upon your tax bracket.
2018 Income Tax Brackets
For the 2018 tax year, a single individual taxpayer has the following tax brackets:
- A rate of 10 percent on taxable income up to $9,525.
- A rate of 12 percent on taxable income between $9,525 and $38,700.
- A rate of 22 percent on taxable income between $38,700 and $82,500.
- A rate of 24 percent on taxable income between $82,500 and $157,500.
- A rate of 32 percent on taxable income between $157,500 and $200,000.
- A rate of 35 percent on taxable income between $200,000 and $500,000.
- A rate of 37 percent on taxable income over $500,000.
If you have taxable Social Security benefits, they'll be included with all your regular income and will be taxed according to these progressive tax rates. For example, a person who makes $12,000 per year in Social Security benefits, plus $25,000 per year in adjusted gross income will be taxed on the $31,000 plus half of the $12,000, or on a total of $37,000. That person's top marginal tax rate is 12 percent; they'll pay 10 percent on the first $9,525 and 12 percent on the rest.
- Forbes: Do You Need To Pay Tax On Your Social Security Benefits?
- IRS: Top Frequently Asked Questions for Social Security Income
- IRS: Publication 915 (2017), Social Security and Equivalent Railroad Retirement Benefits
- IRS: Are Social Security Benefits Taxable?
- Social Security Administration: Benefits Planner - Income Taxes And Your Social Security Benefit
- Social Security Administration: Retirement Benefits
- Social Security Administration: Benefits Planner: Disability
- Social Security Administration: Supplemental Security Income (SSI) Benefits
- IRS: Regular & Disability Benefits
- IRS: Topic Number 423 - Social Security and Equivalent Railroad Retirement Benefits
- National Academy of Social Insurance: What is Social Security?
- Social Security Administration: Social Security History FAQs
- Social Security Administration: Benefits Planner: Survivors
- The Tax Foundation: 2018 Tax Brackets
Rebecca K. McDowell is an attorney focusing on creditor and debtor law. She has a B.A. in English and a J.D. She has written finance and tax articles for Pocketsense and eHow.