Is Social Security Taxable?

Glenn Kirst is a planning excellence lead consultant at Northwestern Mutual.

After working for years and paying into Social Security, retirement is when you’ll finally cash in your benefit. A common misconception is that your Social Security payments are yours free and clear, but a portion of this income may be subject to taxes. According to the Social Security Administration, about 40 percent of people who collect Social Security pay tax on their benefit. That’s an important detail when it comes to managing your retirement savings—and getting the most out of your nest egg.

Here’s how to determine whether you’ll have to pay taxes on your Social Security payments and how Social Security tax is calculated. We’ll also cover some tips about how to minimize the overall impact of taxes in retirement.

<H2> Does Social Security count as taxable income?

Your Social Security benefit is considered a form of unearned income, which is income that doesn’t come from working. Other types of income also fall into this category, including:

• Investment income like capital gains, dividend payments and interest from savings accounts or certificates of deposit (CDs)
• Payments from pensions or annuities
• Disability benefits
• Unemployment benefits
• Passive income from a rental property or other sources

Are Social Security benefits taxable?

The amount of your Social Security benefit that’s taxed at the federal level depends on a number of different factors—including your total income from other sources and how much you’re receiving in Social Security payments. If your income exceeds a certain threshold, up to 85 percent of your benefit could be taxable.

While you’ll never have to pay taxes on your full benefit amount, there’s a good chance that a portion of your payments will be subject to federal income tax. On the state level, only the following states tax Social Security benefits:

• Colorado
• Connecticut
• Minnesota
• Montana
• New Mexico
• Rhode Island
• Utah
• Vermont
• West Virginia

Is Supplemental Security Income (SSI) taxable?

Supplemental Security Income (SSI) is a benefit from the Social Security Administration intended for people who have limited income and resources and are 65 and older, disabled or blind. One major difference between SSI and Social Security retirement benefits is that SSI is never subject to taxes.

Is Social Security Disability Insurance (SSDI) taxable?

Social Security Disability Insurance (SSDI) is a special disability insurance benefit from the Social Security Administration. It’s designed to support you and certain family members if you become disabled and are “insured” (meaning that you’ve worked and paid into Social Security). SSDI benefits are taxed the same way as Social Security retirement benefits.

How is Social Security tax calculated?

The first step is to calculate your annual combined income:
Adjusted gross income + tax-exempt interest + 1/2 of your annual Social Security benefits = combined income

Next, look at the IRS base rates for your tax filing status. For the 2025 and 2026 tax years, if your combined income is above the threshold amounts below, your Social Security benefits may be taxed:

If your combined gross income is more than the base amount for your filing status, up to 85 percent of your benefits may be taxable:

What is the Social Security tax rate?

If you are required to pay taxes on a portion of your Social Security benefit, it will be taxed at your regular federal income tax rate, which is determined by your tax bracket. But remember: Not all of your benefit will be taxed. Your income tax return, which considers your income sources and total income (including Social Security benefits), can clarify the exact amount you’ll need to pay—and at what rate.

At what age is Social Security no longer taxable?

Age is not a factor in determining whether or not you need to pay taxes on your benefits. Social Security benefits are subject to tax as long as you live—regardless of your age.

How do I avoid paying taxes on Social Security?

Though you may not be able to completely avoid paying taxes on your benefits, there are some financial moves you can make to help reduce the impact of taxes.

1. Convert retirement funds to a Roth IRA or Roth 401(k)

With a Roth 401(k) or Roth IRA, you take distributions tax-free (since you’ve already paid taxes on the money you contributed). That means that any retirement income from Roth accounts doesn’t count toward your annual combined income—so, anything you withdraw from a Roth account during retirement won’t impact your Social Security benefit’s tax liability. Using a mix of taxable and non-taxable accounts can give you some flexibility, as you can withdraw enough from taxable accounts to stay in a certain tax bracket, then move to non-taxable sources to meet your needs¹.

Roth accounts and Roth conversions are also subject to five-year rules that could trigger taxes. There’s a lot to think about when you convert to a Roth, however, so you’ll want to make sure you understand all the pieces in play (and make sure you speak with a tax advisor before taking any action).

In the year you convert the Roth, the funds will count as part of your taxable income, which means you’ll owe income tax on them in that year. That means those funds will count toward your taxable income, which could increase what you’d owe in Social Security. You’ll also want to be aware that Roth conversions can impact your Income-Related Monthly Adjustment Amount (IMRAA) threshold and what you owe for Medicare.

2. Access the cash value of a permanent life insurance policy

Cash value that you can access whenever you need it is one of the perks of a permanent life insurance policy. There are ways to access your cash value without owing any tax, which makes it another non-taxable income source that you can use for income if you’re trying to stay within a certain tax bracket.

3. Delay taking Social Security benefits

There are several potential benefits to delaying taking Social Security if you’re able to hold off. Not only will you be able to increase your total benefit amount (you’ll get an additional 8 percent every year that you delay claiming your benefits beyond your full retirement age), but by increasing your payment amount, you’ll also likely have to rely less heavily on income from other retirement accounts once you do begin taking payments. And by taking less from your retirement accounts, you may be able to lower your annual combined income (which includes only half of your Social Security benefit payment).

4. Purchase a qualified longevity annuity contract

A qualified longevity annuity contract, or QLAC, is a type of deferred income annuity you can purchase with funds from a qualified retirement account. It can allow you to delay your required minimum distributions (RMDs) from age 73 to 85. Delaying distributions can allow you to stay in a lower tax bracket longer, reducing the amount you’d owe in taxes.

5. Work with a financial advisor

There’s a lot to think about when deciding when to take Social Security and how to leverage other retirement accounts to minimize your tax impact in retirement. And there’s no one-size-fits-all solution—the best decision for you will depend on your unique situation. Though the IRS provides worksheets and resources, working with a financial advisor can simplify the process immensely.

Your Northwestern Mutual financial advisor can look at all your assets and help you determine where Social Security best fits into the equation. They can also show you the impact of different claiming decisions and help you plan ahead so you’re not paying more taxes than you need to on your hard-earned retirement savings.

This material does not constitute tax or legal advice. Please consult with a tax or legal professional for advice about your specific situation. The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value will reduce the death benefit and may affect other aspects of the policy.

¹Roth distributions may be subject to ordinary income tax and may be subject to a 10% IRS early withdrawal penalty if taken before age 59 ½.