This article is part of the Retirement Financial Life Equation (RFLE) series. It was initially published on November 3, 2021, and updated in April 2026.
Most people don’t think too much about income taxes in retirement. They assume they’ll pay less since their income will likely be lower. For many, that’s a reasonable assumption (at least as long as tax rates remain relatively low). Others believe their Social Security retirement benefits aren’t taxable at all, further reducing their overall tax bill.
Well, as it turns out, some of us won’t have to pay taxes on Social Security (SS) benefits, but many of us will. If you start receiving benefits and have a pension or annuity, withdraw from retirement savings, or work part-time, you probably will pay taxes on at least some of your SS benefits. And as we’ll see, how much tax you pay depends on a variety of factors.
Out of sight, out of Mind
I have to confess that I don’t spend much time worrying about income taxes in retirement. My wife and I receive SS benefits, and those combined with withdrawals from our IRA are the money we live on. I don’t have taxes withheld from our SS payments, but Medicare does deduct our Part B premiums. However, every time I withdraw money from my traditional IRA, I set aside at least 15-20% for federal and state taxes.
I know I have to pay taxes, and I should do so cheerfully and with gratitude (Romans 13:1–7). But it stings a little because for every $1.00 I withdraw, I can only spend 80-85 cents of it.
Why do we have to pay taxes on Social Security?
Social Security has faced financial challenges for decades. Back in the 1980s, Congress passed legislation to shore it up. One of the more controversial additions in the 1983 Amendments was the taxation of Social Security benefits, which the government officially implemented in 1984. It was intended to impact only upper-income senior households, and its purpose was to help raise additional revenue while avoiding benefit cuts.
It has been pretty unpopular ever since, mainly because the income thresholds have never been adjusted for inflation.
If most of our income came from Social Security alone, we probably wouldn’t owe any tax on it. That’s good news and bad, of course. It would be nice not to pay taxes, but perhaps not so good if we had little more than Social Security to live on. I think it’s better to have additional income beyond SS, even if we have to pay taxes on it.
We pay taxes on some of our SS benefits because our “provisional income” exceeds a “base amount” of $32,000 a year (for married filing jointly; it’s $25,000 a year for singles). If we were below that amount, none of our SS benefits would be taxed.
Almost any form of income in addition to SS benefits—except Roth IRA distributions—will push us over these limits. The most common sources include:
- Traditional IRA or 401(k) withdrawals
- Pension income
- Annuity payments
- Taxable investment account distributions
- Part-time employment
- Interest and dividends (including tax-exempt municipal bond interest)
What’s “provisional income”?
You may be wondering, “What’s provisional income?” The IRS defines it as the amount of income used to determine how much of your Social Security benefit is taxable.
The formula is: Half of your SS benefits + Adjusted Gross Income (AGI) + Tax-exempt interest = Provisional Income
For example, let’s say your SS benefits are $45,000 per year and your AGI is $35,000 due to withdrawals from a traditional IRA. Your total income (before taxes) would be $80,000 ($45,000 + $35,000). But your provisional income would be $57,500:
($45,000 ÷ 2) + $35,000 + $0 = $57,500
Provisional income of $57,500 is $25,500 over the IRS’s $32,000 threshold, indicating that most of your SS benefits will be taxable. (We’ll learn by how much in the next section.)
Important notes about AGI:
- Adjusted Gross Income (AGI) is the sum of all your annual taxable income BEFORE any deductions (standard or itemized)
- It includes wages, capital gains, dividends, pensions, interest, traditional IRA distributions, and just about any other taxable income source
- It does NOT include Roth IRA distributions
- Tax-free interest (like municipal bonds) is NOT included in AGI but IS included in provisional income
In my case (and for many other retirees), it’s nearly impossible to keep SS benefits from being taxable once you start taking distributions from traditional retirement accounts. Furthermore, if your SS benefits become taxable, it can increase your effective marginal tax rate.
The taxation thresholds that never change
Here’s the critical problem with Social Security taxation: The income thresholds ($25,000/$32,000 and $34,000/$44,000) have never been adjusted for inflation since 1984.
This means that over time, more and more retirees find their benefits being taxed. What might have truly affected only “upper-income” households in 1984 now affects many middle-income retirees.
With inflation running at historical averages, these thresholds lose purchasing power every year. A $32,000 threshold in 1984 would be equivalent to about $95,000 in today’s dollars. This is why Social Security taxation catches so many retirees by surprise.
How much of your benefits will be taxed?
The IRS rules state:
First Tier (50% taxable):
- For singles with a combined income between $25,000-$34,000
- For married filing jointly with a combined income between $32,000-$44,000
- Up to 50% of your SS benefits become taxable income
Second Tier (85% taxable):
- For singles with a combined income above $34,000
- For married filing jointly with a combined income above $44,000
- Up to 85% of your SS benefits become taxable income
Important clarification: This doesn’t mean you pay 50% or 85% in taxes. It means that the percentage of your benefits that is part of your taxable income is taxed at your regular marginal rate.
Only the portion of your provisional income that exceeds the base amount is taxable. Just because your provisional income exceeds $32,000 doesn’t mean all your benefits will be taxable; only the amount over the threshold will be taxable.
A detailed example
Let’s work through our earlier example in detail. You’re married, filing jointly with:
- SS benefits: $45,000/year
- IRA withdrawals (AGI): $35,000/year
- Provisional income: $57,500
Step 1: The first $32,000 of provisional income doesn’t trigger any SS taxation.
Step 2: The next $12,000 ($32,000 to $44,000) is taxed at 50%.
- $12,000 × 50% = $6,000 of SS benefits become taxable
Step 3: Everything above $44,000 is taxed at 85%.
- $57,500 – $44,000 = $13,500
- $13,500 × 85% = $11,475 of SS benefits become taxable
Total taxable SS benefits: $6,000 + $11,475 = $17,475 (approximately 39% of total SS benefits)
Total AGI: $35,000 (IRA) + $17,475 (taxable SS) = $52,475
Calculating your actual tax (2025 rules)
Now let’s see what you’d actually owe in federal taxes for 2025, using the example above.
Total AGI: $52,475 Standard Deduction (married filing jointly, 2025): $31,500 Taxable Income: $20,975
Tax calculation using 2025 brackets for married filing jointly:
- First $23,850: 10% = $2,385
- Remaining $0 (we’re below the 12% bracket threshold)
Total federal tax: Approximately $2,098
Effective tax rate: $2,098 ÷ $80,000 total income = 2.6%
That’s quite manageable! Even though some benefits are taxable, your overall effective tax rate remains low.
Important 2025 tax changes from the OBBBA
The One Big Beautiful Bill Act (signed July 2025) made significant changes affecting retirees:
Increased standard deduction for 2025:
- Single filers: $15,750
- Married filing jointly: $31,500
- Head of household: $23,625
Additional standard deduction for seniors (65+):
- $2,000 for single filers
- $1,600 per spouse for married filing jointly
NEW: Senior Bonus Deduction (2025-2028):
- An additional $6,000 deduction per eligible person age 65+
- Phases out for MAGI above $75,000 (single) or $150,000 (married)
- A qualifying married couple could potentially deduct $46,700 total!
These changes significantly improve the tax situation for many retirees, especially those age 65 and older.
Understanding marginal vs. effective tax rates
While the example above shows a low effective tax rate, it’s important to understand marginal rates—the rate you pay on your last dollar of income.
2025 Federal Tax Brackets (Married Filing Jointly):
- 10%: $0 – $23,850
- 12%: $23,851 – $96,950
- 22%: $96,951 – $206,700
- 24%: $206,701 – $394,600
- And higher brackets above that
In our example, with taxable income of $20,975, you’re in the 10% marginal bracket. Your next dollar of income would be taxed at 10%.
The “stealth tax” problem
Here’s where things get tricky: When Social Security benefits first become taxable, they can create what’s called a “stealth tax” or “tax torpedo.”
For every additional dollar of income you receive once you’re in the phase-in range:
- That dollar is taxed at your marginal rate (say 12%)
- PLUS it makes $0.50 or $0.85 of your SS benefits taxable (also at 12%)
- This can create an effective marginal rate of 22.2% (12% + 12% × 0.85) in some ranges
This is why careful tax planning in retirement matters so much.
The RMD problem
Another factor that can significantly increase taxes: Required Minimum Distributions (RMDs) from traditional IRAs and 401(k)s.
Current RMD rules:
- RMDs begin at age 73 (for those born 1951-1959)
- RMDs begin at age 75 (for those born 1960 or later)
When RMDs kick in, they can push you over the SS taxation thresholds even if you don’t need the money. This is why Roth conversions earlier in retirement (before RMDs begin) can be so valuable.
Strategies to minimize taxation
While I’m not a tax expert, here are some strategies to consider:
1. Track income carefully each year. If you’re close to the thresholds, consider timing discretionary income (such as Roth conversions or capital gains) to stay below the limits.
2. Use Roth accounts strategically. Roth IRA distributions don’t count toward provisional income. Using Roth money for large expenses can help manage taxes.
3. Consider Qualified Charitable Distributions (QCDs). Once you’re 70½, you can donate up to $108,000 (2025 limit) directly from your IRA to charity. This satisfies RMDs without increasing AGI or provisional income.
4. Time Social Security claiming carefully. Delaying SS while doing Roth conversions can be tax-efficient for some retirees.
5. Understand state taxation. Many states don’t tax Social Security benefits at all. Your state’s rules may differ from federal rules.
6. Use the new senior deductions. If you’re 65+ and qualify for the new $6,000 senior bonus deduction, this could significantly reduce your tax burden.
Taxes may not be as much as you think
For the vast majority of retirees with modest incomes, taxation of Social Security benefits is manageable and shouldn’t cause major financial stress. The combination of the standard deduction, additional senior deductions, and the new senior bonus deduction (for eligible taxpayers) means many retirees pay very little in federal income tax.