Did You Know Up to 85% of Your Social Security Can Be Taxed?

Yes, Social Security Is Taxable - Here Is How It Works

Up to 85% of your Social Security benefit can be subject to federal income tax. The amount that gets taxed depends on your 'combined income,' a formula unique to Social Security taxation. Combined income equals your adjusted gross income, plus any tax-exempt interest you earned (like municipal bond interest), plus half of your Social Security benefit. This is the number the IRS compares against fixed thresholds to determine how much of your benefit is taxable. For single filers: if your combined income is under $25,000, your Social Security is not taxable. Between $25,000 and $34,000, up to 50% of your benefit becomes taxable. Above $34,000, up to 85% of your benefit is taxable. For married couples filing jointly: the thresholds are $32,000 (below which nothing is taxable), $32,000 to $44,000 (up to 50% taxable), and above $44,000 (up to 85% taxable). Here is an example to make this concrete. You are married, receiving $28,000 per year in Social Security, and have $36,000 in other retirement income - perhaps a combination of IRA withdrawals and a small pension. Your combined income calculation: $36,000 AGI plus $14,000 (half of SS) equals $50,000. That is above the $44,000 married threshold, so 85% of your $28,000 Social Security benefit - that is $23,800 - is added to your taxable income. You are now taxed on $59,800 in total, not $36,000.

The Stealth Tax Increase Nobody Voted For

The Social Security taxation thresholds were set by Congress in 1983 and expanded in 1993. The 1983 thresholds ($25,000 single, $32,000 married) have never been adjusted for inflation. The 1993 thresholds ($34,000 single, $44,000 married) have also never moved. If the original 1983 thresholds had been indexed to inflation at standard CPI rates, the single-filer threshold would be above $75,000 today and the married threshold would be above $100,000. Instead, they sit exactly where they were set in 1983. This design - which some describe as a stealth tax increase - means that each year, more retirees cross into taxable territory without Congress ever voting to raise anyone's taxes. As wages, pensions, and investment returns grow with inflation over decades, fixed dollar thresholds capture an ever-larger share of the population. The Congressional Budget Office estimates that the fraction of Social Security beneficiaries paying federal tax on benefits has grown dramatically since the thresholds were set. The practical impact compounds over a typical retirement. A 65-year-old couple today who starts retirement with combined income just below $32,000 may be in the safe zone initially. But if they take RMDs at 73, receive COLA increases on Social Security, and have any pension income with its own COLA adjustments, they will likely cross into partial and then full 85% taxation territory within a few years. Once there, each additional dollar of income makes 85 cents of Social Security taxable - creating effective marginal rates that can reach 40% or more.

How IRA and 401(k) Withdrawals Make the Problem Worse

Here is the feedback loop that trips up most retirees: every dollar you withdraw from a traditional IRA or 401(k) increases your adjusted gross income, which increases your combined income, which pulls more Social Security into taxable territory. Suppose you are a single retiree receiving $24,000 per year in Social Security. Your combined income starts at $12,000 (half of SS), which is safely below the $25,000 threshold. Nothing is taxable. Now your RMD begins at 73, requiring a $22,000 annual withdrawal. Your combined income jumps to $34,000 ($22,000 RMD plus $12,000 half of SS). You have crossed both thresholds. Now 85% of your $24,000 Social Security - $20,400 - is added to your taxable income. Your total taxable income is now $42,400, and you owe tax on $20,400 of benefits that were not taxable before the RMD started. This interaction is the core of what retirement planners call the 'tax torpedo.' One additional dollar of IRA income does not just add one dollar of tax - it also adds 85 cents of newly taxable Social Security. Your effective marginal rate on that IRA dollar is actually 1.85 times your nominal bracket rate. In the 22% bracket, the effective marginal rate on IRA income in the SS phase-in zone can reach 40.7%. Eight states continue to tax Social Security benefits at the state level in 2026: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont. If you live in one of these states, add your state income tax rate on top of the federal calculation above.

Planning Around the SS Tax Thresholds

The good news is that the Social Security taxation formula is predictable. You know the thresholds. You know the formula. That means you can plan around it. The most effective strategies focus on reducing your adjusted gross income so that less of your combined income calculation lands above the taxable thresholds. Roth conversions before Social Security begins can dramatically reduce future RMDs - and smaller RMDs mean lower combined income in the years you are collecting benefits. For retirees already collecting Social Security, Qualified Charitable Distributions are powerful. A QCD of $15,000 from your IRA satisfies that portion of your RMD requirement while being excluded from your AGI entirely. Your combined income calculation does not include the QCD amount, potentially keeping you below the 85% taxation threshold. Income timing also matters. If you have flexibility in when you take certain distributions, keeping your combined income just below a threshold is often worth more than the income you would have earned by taking a larger distribution. The difference between $43,999 and $44,001 in combined income for a married couple is the threshold between 50% and 85% Social Security taxation. Finally, understanding which income sources do not count in the combined income formula is useful. Roth IRA withdrawals are excluded. Policy loans from a properly structured life insurance policy are excluded. Returning of basis from non-deductible IRA contributions, while complicated, is partially excluded. Structuring income to lean on these tax-favorable sources can reduce your combined income and keep more of your Social Security tax-free.

The Long-Term Social Security Tax Picture

Looking forward, there is no realistic scenario in which Congress adjusts these thresholds upward anytime soon. Doing so would cost hundreds of billions in revenue over a decade at a time when the federal budget is severely stressed. The most likely outcome is that these thresholds remain exactly where they are, and an ever-growing percentage of Social Security recipients will owe federal income tax on their benefits. For pre-retirees with 10-20 years before collecting Social Security, the planning window is substantial. The key variables you control are the composition of your retirement income - specifically, the ratio of taxable to tax-free income. Every dollar shifted from a traditional IRA (which counts in combined income) to a Roth IRA or other tax-free source reduces your combined income calculation and protects more of your Social Security from taxation. Use the Social Security tax calculator to model different income scenarios. Run your numbers at three levels: what your combined income looks like with current savings at the projected distribution amounts, what it looks like after maximizing Roth conversions over the next five years, and what it looks like in a worst-case scenario where rates rise and your RMDs are larger than expected. The spread between the best and worst scenario is often $5,000-$15,000 per year in tax savings over a 20-year retirement - well worth the planning effort.