This article is part of the Retirement Financial Life Equation (RFLE) series, which focuses on the critical levers that affect your retirement income and financial sustainability.
When I was preparing to claim Social Security benefits, I thought I understood how the taxation worked. After all, I’d written about it before on this blog. But when I actually sat down to calculate what we’d owe and how it would affect our overall tax situation, I realized the system is more complex—and more consequential—than I’d appreciated.
Here’s what surprised me most: Whether your Social Security benefits are taxed isn’t just about how much you receive from Social Security. It’s about your total income picture. The way the tax is calculated can lead to unexpected outcomes that significantly affect your retirement stewardship.
This matters because Social Security is likely the foundation of your retirement income. For most retirees, it’s the largest single source of inflation-adjusted, guaranteed-for-life income. Understanding how it’s taxed—and what you can do to minimize that tax—is essential to faithful stewardship of your resources.
Not all benefits are taxable
Here’s the first thing you need to understand: Social Security benefits are treated differently from other income for tax purposes. Depending on your total income, anywhere from 0% to 85% of your Social Security benefits may be subject to federal income tax.
Let me say that again: The maximum amount that can be taxed is 85% of your benefits. Even in the worst case, 15% of your Social Security is always tax-free at the federal level.
But many retirees pay taxes on far less than 85% of their benefits. Some pay taxes on 50%. And some—those with relatively low total income—pay no federal tax on their Social Security at all.
The question is: Which category do you fall into? And more importantly, can you make strategic decisions to minimize how much of your Social Security is taxable?
How the tax is calculated
The IRS uses something called “combined income” (also called “provisional income”) to determine how much of your Social Security is taxable. This is not the same as your adjusted gross income (AGI). It’s a special calculation used only for this purpose.
Here’s the formula for combined income:
Combined Income = Adjusted Gross Income + Nontaxable Interest + ½ of Social Security Benefits
Let me break down each component:
Adjusted Gross Income (AGI): This includes most of your taxable income—wages (if you’re still working part-time), withdrawals from traditional IRAs and 401(k)s, pension income, interest and dividends from taxable accounts, capital gains, rental income, etc.
Nontaxable Interest: This primarily means municipal bond interest. Even though it’s not taxed, it counts toward your combined income for Social Security taxation purposes.
Half of Social Security Benefits: You add 50% of the Social Security benefits you received during the year.
Once you calculate your combined income, you compare it to two sets of thresholds to determine how much of your Social Security is taxable.
When taxation kicks in
The IRS uses two sets of thresholds—one for single filers and one for married filing jointly. These thresholds have not been adjusted for inflation since they were established in 1983 and 1993, which means more and more retirees are subject to Social Security taxation over time.
For Single Filers:
- Combined income below $25,000: 0% of Social Security is taxable
- Combined income between $25,000 and $34,000: Up to 50% of Social Security is taxable
- Combined income above $34,000: Up to 85% of Social Security is taxable
For Married Filing Jointly:
- Combined income below $32,000: 0% of Social Security is taxable
- Combined income between $32,000 and $44,000: Up to 50% of Social Security is taxable
- Combined income above $44,000: Up to 85% of Social Security is taxable
Notice that those thresholds are pretty low. If you have any significant income beyond Social Security—whether from pension, IRA withdrawals, or investment income—you’re very likely going to pay taxes on at least some of your Social Security benefits.
The actual calculation (it’s a little complicated)
Here’s where it gets tricky. The thresholds tell you the maximum percentage that can be taxed, but the actual calculation of how much is taxable involves a two-tier formula that’s genuinely complex.
I’m not going to walk through the whole IRS worksheet here because it would make your eyes glaze over. But I want to give you the basic concept so you understand what’s happening.
Tier 1 (the 50% tier): For the amount of combined income that falls between the first and second threshold, up to 50% of that excess becomes taxable Social Security.
Tier 2 (the 85% tier): For the amount of combined income that exceeds the second threshold, up to 85% of that excess becomes taxable Social Security.
But—and this is important—the total taxable Social Security can never exceed 85% of your total benefits.
Let me give you a concrete example to clarify this.
Example: A married couple’s Social Security taxes
Let’s say John and Mary are married filing jointly. Here’s their income:
- Social Security benefits: $40,000
- Traditional IRA withdrawals: $30,000
- Interest and dividends: $5,000
- Municipal bond interest: $0
Step 1: Calculate combined income
- AGI: $35,000 ($30,000 IRA + $5,000 interest/dividends)
- Nontaxable interest: $0
- Half of Social Security: $20,000
- Combined income: $55,000
Step 2: Apply the thresholds. Their combined income of $55,000 exceeds the second threshold of $44,000 for married filing jointly. This means up to 85% of their Social Security could be taxable.
Step 3: The actual calculation. Without going through the entire IRS worksheet, their taxable Social Security would be approximately $22,750 (about 57% of their $40,000 in benefits).
This means their total taxable income for the year would be:
- IRA withdrawals: $30,000
- Interest and dividends: $5,000
- Taxable Social Security: $22,750
- Total taxable income: $57,750
After their standard deduction of $30,000 (for 2025, married filing jointly), their taxable income would be about $27,750.
State taxation of Social Security
I’ve been focusing on federal taxation, but you also need to consider your state tax obligations. Most states don’t tax Social Security benefits at all. But several states do:
States that fully or partially tax Social Security (as of 2025):
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
As a retiree, I’m glad my state (NC) isn’t on the list. For those who are, each has its own rules, thresholds, and exemptions. If you live in one of these states, you need to understand how your state treats Social Security in addition to the federal treatment.
Some states exempt Social Security from taxation for taxpayers with income below certain thresholds. Others tax it the same as the federal government. A few have unique formulas.
This is another factor to consider if you’re thinking about relocating in retirement—though it shouldn’t be the only factor, of course.
FAQs
Q: Why is my Social Security taxed at all? Didn’t I already pay taxes on that money?
A: You paid payroll taxes (FICA) on your wages, which funded the Social Security system. But those payroll taxes were different from income taxes. The benefits you received were never taxed as income to you when you earned them.
That said, the taxation of Social Security benefits is a relatively recent development. Benefits weren’t taxed at all before 1984, and the 85% threshold wasn’t added until 1993. Many people who contributed for decades, expecting tax-free benefits, feel this is unfair—and I understand that sentiment.
Q: If 85% of my benefits are taxable, does that mean I pay 85% of my benefits in taxes?
A: No. This confuses many people. Having 85% of benefits taxed means 85% is included in your taxable income calculation. You then pay your marginal tax rate on that amount.
For example, if you receive $40,000 in Social Security and 85% ($34,000) is taxable, and you’re in the 12% tax bracket, you’d pay about $4,080 in federal tax on those benefits, which is about 10% of your total benefits, not 85%.
Q: Can I have taxes withheld from my Social Security check?
A: Yes. You can request voluntary federal tax withholding from your Social Security benefits using Form W-4V. You can choose to have 7%, 10%, 12%, or 22% withheld from your monthly benefit.
Some retirees find this helpful in avoiding a large year-end tax bill. Others prefer to make quarterly estimated tax payments or adjust their withholding from other income sources.
Q: How do I know exactly how much of my Social Security will be taxable?
A: The most accurate way is to work through the IRS worksheet in the instructions for Form 1040, or use tax software that handles this automatically. You can also estimate using the combined income formula and thresholds I described earlier.
Your tax preparer can also help you model different scenarios to understand how various income decisions will affect your Social Security taxation.
A stewardship perspective on Social Security taxation
As Christians, how should we think about paying taxes on our Social Security benefits?
First, let’s acknowledge the reality: Many of us would prefer not to pay these taxes. The thresholds haven’t been adjusted for inflation in over 30 years. The “tax torpedo” effect feels like you’re being unfairly penalized. Yes, you contributed to the system through decades of payroll taxes.
But here’s what I’ve come to believe: Paying taxes—even taxes we’d rather not pay—is part of our responsibility as citizens and our submission to governing authorities.
“Render to Caesar the things that are Caesar’s, and to God the things that are God’s.” (Mark 12:17, ESV)
“Let every person be subject to the governing authorities. For there is no authority except from God, and those that exist have been instituted by God.” (Romans 13:1, ESV)
This doesn’t mean we can’t work within the system to minimize taxes through legal strategies. Tax planning isn’t tax evasion. Being wise about timing income, using QCDs, and doing strategic Roth conversions—all of these are legitimate ways to steward your resources well.
But it does mean we shouldn’t become bitter or obsessed with avoiding every dollar of tax. We pay what we legitimately owe. We don’t cheat. We don’t hide income. We render to Caesar what is Caesar’s.
And here’s another perspective: If you’re paying taxes on your Social Security, that means you have other income. You have resources beyond just Social Security. Many retirees would love to be in that position.
When I calculated our Social Security taxation for the first time and saw that we’d be paying taxes on about 60% of our benefits, my first reaction was frustration. But then I stopped and thought: We’re paying taxes because we have IRA income, investment income, and sufficient resources overall. That’s not a problem—it’s a blessing.
Yes, I want to minimize our taxes through wise planning. But I also want to maintain perspective and gratitude.
Practical action steps
If you’re approaching retirement or already retired and receiving Social Security, here are some practical steps to take:
1. Calculate your combined income. Use the formula I provided to figure out where you stand. This will indicate whether 0%, 50%, or 85% of your Social Security benefits may be taxable.
2. Model different scenarios. What happens to your taxes if you take more from your traditional IRA? Less? What if you do a Roth conversion? What if you use QCDs for your giving? Run the numbers.
3. Consider tax software or professional help. The calculations are complex enough that using good tax software (like TurboTax or H&R Block) or working with a tax professional is worthwhile. They can help you model different strategies.
4. Review your withholding. Make sure you’re withholding enough—whether from Social Security directly, from other income sources, or through quarterly estimated payments—to avoid underpayment penalties.
5. Plan your income timing. If you have flexibility about when to recognize certain income, use the combined income framework to make strategic decisions.
6. Stay informed about tax law changes. Tax laws change. Thresholds might be adjusted (though they haven’t been in decades). New strategies might emerge. Stay current or work with someone who does.
7. Integrate this with your overall retirement income plan. Social Security taxation isn’t a standalone issue—it’s part of your overall tax situation, which affects your sustainable withdrawal rate, your giving capacity, and your long-term financial security.
The bottom line
Social Security taxation is more complex than most retirees realize. The combined income formula, the two-tier threshold system, and the interaction with other tax planning strategies create a web of considerations that can feel overwhelming.
But here’s the good news: Once you understand how it works, you can make informed decisions that reduce your tax burden while maintaining your financial security and your ability to give generously.
You don’t need to become a tax expert. But you do need to understand the basics:
- Combined income determines how much of your Social Security is taxable
- The thresholds are low and haven’t been adjusted for inflation
- Strategic planning can significantly reduce your tax burden
- This interacts with nearly every other retirement income decision you make
Most importantly, remember that this is about stewardship—managing God’s resources wisely, paying what you legitimately owe to civil authorities, and maintaining a spirit of gratitude and contentment rather than anxiety or resentment.
Yes, minimize your taxes through legal strategies. But don’t let tax optimization become an idol. Don’t let frustration about taxes rob you of peace.
You’re a steward. Steward well. Plan wisely. Pay what you owe. And trust God to provide for your needs, even after taxes.
That’s faithful retirement stewardship.
Additional Resources:
- IRS Publication 915: “Social Security and Equivalent Railroad Retirement Benefits”
- SSA Publication No. 05-10229: “Income Taxes and Your Social Security Benefit”
- IRS Form 1040 Instructions: Includes the worksheet for calculating taxable Social Security