How Social Security Is Taxed: Federal and State Rules

Social Security benefits are an important part of retirement income for millions of Americans, but many retirees are surprised to learn that these benefits can be subject to federal and, in some cases, state income taxes. Understanding how Social Security is taxed, and what income sources can trigger these taxes, is essential for effective retirement planning.

Federal Taxation of Social Security Benefits

At the federal level, whether your Social Security benefits are taxed depends on your “combined income,” which is your adjusted gross income (AGI) plus any nontaxable interest income (such as municipal bond interest) plus half of your Social Security benefits. The IRS uses this combined income to determine if, and how much, of your Social Security benefits are taxable.

For single filers, if your combined income is below $25,000, your Social Security benefits are not taxed. If your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxable. If your combined income exceeds $34,000, up to 85% of your benefits may be taxable.

For married couples filing jointly, the thresholds are higher. If your combined income is below $32,000, your benefits are not taxed. Between $32,000 and $44,000, up to 50% of benefits may be taxable. Above $44,000, up to 85% of benefits may be taxable.

The actual tax rate applied to the taxable portion of your Social Security benefits is not a special rate; it is taxed at your ordinary income tax rate, just like wages or other income.

State Taxation of Social Security Benefits

While most states do not tax Social Security benefits, a handful still do, though many offer exemptions or deductions based on income or age. As of 2025, nine states tax Social Security benefits to some extent: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, Rhode Island, and Utah. However, several of these states provide generous exemptions or only tax benefits for higher-income retirees.

For example, in Colorado, retirees age 65 and older can deduct all federally taxed Social Security benefits from their state taxable income, effectively exempting most from state tax. In Connecticut, Social Security benefits are not taxed for single filers with AGI under $75,000 or joint filers with AGI under $100,000. New Mexico exempts benefits for single filers earning up to $100,000 and joint filers up to $150,000.

How Required Minimum Distributions (RMDs) Affect Social Security Taxation

Required Minimum Distributions (RMDs) from tax-deferred retirement accounts like a 401(k) or traditional IRA are treated as ordinary income and must be taken starting at age 73 (for those born after 1950). These distributions increase your adjusted gross income and, as a result, your combined income for Social Security tax purposes.

If your RMDs, along with other income sources, push your combined income above the IRS thresholds, a greater portion of your Social Security benefits will become taxable. This can create a domino effect: higher income leads to more Social Security taxed, which in turn increases your overall tax liability.

The Importance of Proper Tax Withholding

To avoid a large tax bill at year-end, retirees should consider adjusting their tax withholding. You can request federal tax withholding from your Social Security benefits by submitting IRS Form W-4V to the Social Security Administration. You can choose a withholding rate of 7%, 10%, 12%, or 22%. This is a simple way to ensure you’re paying enough taxes throughout the year and avoid unpleasant surprises when you file your return.

Disclaimer: The information provided on this website is for general informational and educational purposes only and does not constitute tax, legal, or accounting advice. I am not a licensed tax advisor and nothing on this site should be relied upon as tax advice for your specific situation. Tax laws are complex, subject to change, and can vary based on individual circumstances. You are strongly encouraged to consult with a qualified tax professional or advisor before making any decisions or taking any actions based on the information provided here. By using this website, you acknowledge and agree that I am not responsible for any tax consequences that may arise from your use of the information contained herein.