Many retirees rely on Social Security as a significant source of income, but did you know that these benefits can be taxed? If your total income surpasses a certain threshold, a portion of your Social Security benefits could be subject to taxation.
This guide explains how Social Security benefits are taxed in 2025 and provides strategies to reduce your tax burden so you can keep more of your hard-earned money.
Taxation
The IRS determines how much of your Social Security benefits are taxable based on your combined income, which includes:
- Adjusted Gross Income (AGI) – Includes wages, self-employment income, rental income, dividends, and other taxable income.
- Tax-Exempt Interest – Interest from municipal bonds and other tax-free sources.
- 50% of Your Social Security Benefits – Half of your annual Social Security benefits are added to the calculation.
Brackets
The percentage of Social Security benefits that are taxable depends on your total combined income and filing status.
Single Filers
Combined Income | Taxable Portion of Benefits |
---|---|
Below $25,000 | No taxation |
$25,000 – $34,000 | Up to 50% taxable |
Over $34,000 | Up to 85% taxable |
Married Filing Jointly
Combined Income | Taxable Portion of Benefits |
---|---|
Below $32,000 | No taxation |
$32,000 – $44,000 | Up to 50% taxable |
Over $44,000 | Up to 85% taxable |
For instance, if you receive $2,600 per month ($31,200 per year) in Social Security benefits and also have income from a pension, 401(k), or investments, a significant portion of your benefits could be taxed.
Reduction
There are several strategies you can use to lower or even eliminate taxes on your Social Security benefits.
Lower Taxable Income
Since Social Security taxation is based on combined income, keeping your taxable income low can help reduce taxes.
- Delay 401(k) and IRA Withdrawals – If you don’t need the money, avoid taking distributions until you reach Required Minimum Distributions (RMDs) at age 73.
- Convert to a Roth IRA – Withdrawals from Roth IRAs are tax-free and do not count toward combined income.
- Invest in Municipal Bonds – Interest from municipal bonds is federally tax-free and does not impact Social Security taxation.
Tax-Free Retirement Accounts
Some accounts allow for tax-free withdrawals, reducing taxable income:
- Roth IRA Withdrawals – Roth IRA distributions are not included in combined income.
- Health Savings Accounts (HSAs) – Use HSAs for medical expenses to lower taxable income.
Investment Withdrawals
Being mindful of when and how you withdraw money from investments can minimize taxes.
- Withdraw Taxable Income First – If possible, withdraw from taxable accounts before claiming Social Security to reduce future tax burdens.
- Balance Withdrawals – Withdraw from a mix of taxable and tax-free sources (Roths, HSAs) to stay within a lower tax bracket.
Tax-Free State
Some states do not tax Social Security benefits, making them ideal for retirees looking to lower their tax burden.
States That Do Not Tax
- Florida
- Texas
- Nevada
- Tennessee
- South Dakota
- Washington
- Wyoming
If you have other taxable retirement income, moving to a tax-friendly state could further reduce your tax burden.
Although Social Security benefits are taxable, a smart financial strategy can help you reduce the tax impact.
- Delay withdrawals from retirement accounts to stay in a lower tax bracket.
- Use tax-free accounts like Roth IRAs and HSAs.
- Invest in municipal bonds to earn tax-free interest.
- Consider relocating to a state with no Social Security taxes.
By carefully managing your income sources, you can maximize your retirement savings while minimizing taxes. If you’re unsure which approach works best, consult a financial advisor to create a personalized tax strategy.
FAQs
How much Social Security is taxable?
Up to 85% of benefits can be taxed based on total income.
What is the income limit for tax-free Social Security?
Below $25,000 (single) or $32,000 (married) is tax-free.
Do all states tax Social Security?
No, some states do not tax Social Security benefits.
How can I avoid Social Security taxes?
Use Roth IRAs, HSAs, and strategic withdrawals.
Should I move to a tax-free state?
It depends on your total retirement income and expenses.