Is Social Security Taxable?

You or your spouse have spent years working and paying into Social Security, and now it’s finally time to collect your benefit. Because your payroll taxes went toward Social Security for so many years, you’re exempt from paying taxes on these payments when they come your way—right? Well, not necessarily.  

Depending on how much income you’re collecting in retirement (including part of your Social Security benefit), a portion of your Social Security payments may be subject to income tax. According to the Social Security Administration, about 40 percent of people who collect Social Security pay tax on their benefit. 

Here, we’ll explain 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 give you a few tips on minimizing the impact of taxes overall in retirement.  

Does Social Security count as income?  

A portion of your Social Security may count as taxable income, but this will largely depend on how much you’re receiving in Social Security and your total income. So, though you’ll never have to pay taxes on your full benefit amount, it is likely a portion of your Social Security benefit will be subject to income tax. 

Are Social Security benefits taxable?  

Whether your Social Security benefits are taxable will depend on the benefits you receive and your total income. Many people who collect retirement benefits pay taxes on their Social Security benefit because their total income (including Social Security and income from other sources) puts them into a threshold that makes the benefit subject to taxes. However, if you earn below that threshold, your benefit may not be subject to taxes.  

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 either disabled, blind or 65 or older. This benefit works a bit differently than retirement benefits, and one major difference between the two is that SSI is not subject to taxes. So, any SSI payments you’d receive would not be included in your taxable income and therefore would not be taxed.  

Is Social Security Disability Insurance (SSDI) taxable?  

Like SSI, Social Security Disability Insurance (SSDI) is a special disability insurance benefit from the Social Security Administration that can support you and certain family members if you become disabled and if you are “insured” (meaning, you have worked and paid into Social Security). However, unlike SSI, SSDI benefits may be subject to tax—like retirement benefits. This will also depend on the amount of your benefit payment and your other sources of income.  

How is Social Security tax calculated?  

To determine whether you’ll need to pay taxes on your Social Security benefit (and how much you’ll pay), you add the amount of one-half of your Social Security benefits to the total of all your other income, including wages, earnings, interest (taxable and nontaxable), dividends and distributions from qualified retirement accounts. The total of these two amounts will be your annual combined income. (If you’re married and file a joint return, you’ll need to combine your and your spouse’s income and benefits to determine whether a portion of your benefits may be taxable.) 

Once you’ve calculated your annual combined income, you’ll compare it to the IRS base rates by your filing status. In 2024, if your annual combined income is above the threshold amounts below, your Social Security benefits may be subject to tax:  

$25,000 for single, head of household or qualifying surviving spouse 

$32,000 for married filing jointly 

$25,000 for married filing separately (if you lived apart from your spouse) 

$0 for married filing separately (if you lived with your spouse within that year) 

How much of my Social Security income is taxable?  

If your combined income falls below the base amount, you may not owe any taxes on your Social Security benefit. However, if you fall above this number, up to 85 percent of your benefit may be subject to tax (85 percent is the most of your benefit you’d have to pay taxes on). 

What is the Social Security tax rate?  

If you are required to pay taxes on your benefit, a portion of your benefit will be taxed at the federal income tax rate for your tax bracket. But remember—not all of your benefit will be taxed. How much is taxed will vary from person to person, depending on the situation.  

Your income tax return, which takes into account your income sources and total income (including Social Security benefits), will ultimately help you calculate the exact amount you’ll need to pay on your Social Security benefits 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.  

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), so any retirement income from these accounts doesn’t count toward your annual combined income. So, anything you withdraw from a Roth account 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.  

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, and they’ll 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.  

Access the cash value of a permanent life insurance policy 

Cash value that you can access 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.  

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 added 8 percent every year that you wait until you’re 70), 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).  

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 that can allow you to delay your required minimum distributions 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.  

Work with a financial advisor 

There’s a lot of strategy involved in 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 individual situation. Though the IRS has worksheets and resources that can help you make these decisions, working with a financial advisor simplifies the process immensely. 

A Northwestern Mutual financial advisor can help you look at all your assets and determine where Social Security best fits into the equation. An advisor can also help 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