Social Security: Taxable or Not?

We get the question every year: Do I have to pay taxes on my Social Security income? And it's no wonder: when it comes to how Social Security benefits are treated on our tax returns, a few misconceptions have become accepted as fact. So let's clarify things a bit, and go over what Social Security income is taxable, and what is not.

For starters, many taxpayers believe that Social Security benefits are not taxable. And in most cases, that would be correct. But Social Security benefits are income, and as such, if you make enough of it, you’ll end up paying taxes on it.

Figuring the Break

According to the IRS, if your only income is from Social Security benefits, there’s a very good chance you’ll pay no tax and probably don’t even need to file. But if you have income from other sources, such as a pension or investments, you might exceed the tax-free threshold.

To find out, take half of your Social Security benefits for the year and add that to all your other income – including any tax-exempt interest you may have. Include taxable pensions, wages, interest, dividends and any other taxable income. This will give you what the IRS calls your base amount.

The base amount is the amount of income you can receive from all sources – including your Social Security – tax-free. Go above the base amount, and regular tax rates apply. Only the income above your base amount, however, will be considered taxable.

For single, head of household, or qualifying widow(er) filers, the base amount is $25,000. For married filing jointly filers, the base amount is $32,000. Taxpayers who file married filing separately and lived apart from their spouse for the entire tax year also get the $25,000 base amount. But that drops to zero if the couple filed married filing separately, but lived together.

Disability Benefits

The base amounts apply whether the taxpayer receives regular Social Security benefits or Social Security disability. However, those taxpayers receiving supplemental security income (SSI) payments should not include those in the base amount calculation. SSI benefits are not taxable.